Underwriter Competition and Institutional Loan Pricing

62 Pages Posted: 18 Nov 2021 Last revised: 30 Nov 2023

See all articles by Will Shuo Liu

Will Shuo Liu

City University of Hong Kong - Department of Economics and Finance

Zheng Sun

University of California, Irvine - Paul Merage School of Business

Chenyu Xiong

Zhongnan University of Economics and Law - School of Finance

Qifei Zhu

Nanyang Business School, Nanyang Technological University

Date Written: December 15, 2021

Abstract

We propose and document underwriter competition as an important determinant for institutional loan rates. We hypothesize that competition affects underwriters' trade-off between bidding low initial rates to win underwriting mandates and incurring reputational costs when adjusting rates upward in the book-building process. Consistent with this hypothesis, we find that more intense underwriter competition in a given market segment is associated with lower initial loan spreads, more upward rate adjustments during book-building, and lower final loan spreads. The impact of underwriter competition is moderated by investor demand uncertainty and prior borrower-underwriter relationships.

Keywords: Institutional Loans, Underwriter Competition, Relationship Lending, Loan Markets

JEL Classification: G21, G23, G24, G10

Suggested Citation

Liu, Will Shuo and Sun, Zheng and XIONG, CHENYU and Zhu, Qifei, Underwriter Competition and Institutional Loan Pricing (December 15, 2021). Available at SSRN: https://ssrn.com/abstract=3965125 or http://dx.doi.org/10.2139/ssrn.3965125

Will Shuo Liu

City University of Hong Kong - Department of Economics and Finance ( email )

9-206 Lau Ming Wai Academic Bldg
83 Tat Chee Ave, Kowloon Tong
Kowloon, 00000
Hong Kong

Zheng Sun

University of California, Irvine - Paul Merage School of Business ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States

CHENYU XIONG

Zhongnan University of Economics and Law - School of Finance ( email )

WenQuan Building, 182# Nanhu Avenue
East Lake High-tech Development Zone
Wuhan, Hubei 430073
China

Qifei Zhu (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

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