Lending Relationships and the Pricing of Syndicated Loans

61 Pages Posted: 6 Feb 2020 Last revised: 27 Apr 2020

See all articles by Donghang Zhang

Donghang Zhang

University of South Carolina - Darla Moore School of Business

Yafei Zhang

University of South Carolina - Darla Moore School of Business

Yijia (Eddie) Zhao

University of Massachusetts Boston

Date Written: January 14, 2020

Abstract

In the primary market, the lead bank makes less adjustment to the initial pricing terms of a syndicated loan and shortens syndication time when it has a stronger relationship with the borrower. These impacts concentrate in cold loans with weak demand. A stronger relationship also reduces loan underpricing, and this effect is more significant for hot loans with strong demand. A relationship lead bank relies less on information from syndicate members. Exogenous shocks to relationships caused by bank mergers and closures confirm our findings. Our evidence suggests that lending relationships help price discovery in the pricing of syndicated loans.

Keywords: Syndicated Loan, Lending Relationship, Primary Market, Loan Underwriting, Originate-to-Distribute (OTD)

JEL Classification: G14, G21, G24, L14

Suggested Citation

Zhang, Donghang and Zhang, Yafei and Zhao, Yijia (Eddie), Lending Relationships and the Pricing of Syndicated Loans (January 14, 2020). Available at SSRN: https://ssrn.com/abstract=3519341 or http://dx.doi.org/10.2139/ssrn.3519341

Donghang Zhang (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States

Yafei Zhang

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States

Yijia (Eddie) Zhao

University of Massachusetts Boston

100 William T Morrissey Blvd
Boston, MA 02125
United States

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