Syndicated Loan Market and Banks' Distant Lending

Abstract

Banks in the syndicated loan market have increased their distant lending over the last three decades. Lead banks play a role in participant banks' distant lending decisions but not in a way entirely consistent with them acting as “delegated” monitors. This is partly because participant banks rely extensively on their lending experience: they make larger investments in loans to distant borrowers (including those that are more informationally opaque) in industries they have a large lending experience. Lending experience is relatively more important when participant banks lend to distant borrowers that are informationally opaque and the lead bank retains a small loan share, suggesting some substitutability between participants' lending experience and the lead bank's loan share. Another implication of our findings, which we confirm, is that participant banks do not lend farther away from them to diversify risk beyond geographic diversification.

Keywords: Loan syndicates, lead banks, participant banks, distant lending

JEL Classification: G21, G32