International Syndicated Loans and the Role of Lenders’ Trust towards Borrowers and Other Lenders

50 Pages Posted: 12 Mar 2022 Last revised: 29 Apr 2022

See all articles by Byung Hun Chung

Byung Hun Chung

Nanyang Business School, Nanyang Technological University

Jun-Koo Kang

Nanyang Business School, Nanyang Technological University

Jaewoo Kim

University of Oregon - Department of Accounting

Xi Xiong

University of Sussex

Date Written: January 19, 2022

Abstract

We study how trust held by citizens of a lender country towards citizens of a borrower country (“lenders’ generalized trust”) affects pricing and non-pricing terms of international syndicated loans. We find that generalized trust of a lead bank in the syndicated loans reduces loan spreads and the strictness of debt covenants and increases borrowers’ loan accessibility. We further find that lead lenders retrench loans less from more trusted borrowers during the 2008 financial crisis and that having more past lending relationships with the same borrowers weakens the effect of lead bank’s generalized trust on loan terms. Lastly, we find that participant banks with higher trust towards the lead bank share a larger portion of the loans in the syndicate. This result is less evident when they participated in prior syndicates with the same lead bank and when the lead bank has a high reputation. Thus, the effect of citizen-level generalized trust is substituted by that of “personalized” trust or industry-level generalized trust.

Keywords: International syndicated loan, generalized trust, loan spread, covenant, loan accessibility, instrumental variable regression

JEL Classification: F34, G02, G15

Suggested Citation

Chung, Byung Hun and Kang, Jun-Koo and Kim, Jaewoo and Xiong, Xi, International Syndicated Loans and the Role of Lenders’ Trust towards Borrowers and Other Lenders (January 19, 2022). Nanyang Business School Research Paper No. 22-06, Available at SSRN: https://ssrn.com/abstract=4012573 or http://dx.doi.org/10.2139/ssrn.4012573

Byung Hun Chung (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore
+65 6790 4979 (Phone)

Jun-Koo Kang

Nanyang Business School, Nanyang Technological University ( email )

Nanyang Avenue, Block S3-01b-54
Singapore, 639798
Singapore
(+65) 6790-5662 (Phone)
(+65) 6791-3697 (Fax)

HOME PAGE: http://www.nbs.ntu.edu.sg/nbs_corporate/divisions/bnf/index.asp

Jaewoo Kim

University of Oregon - Department of Accounting ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

Xi Xiong

University of Sussex ( email )

Sussex House
Falmer
Brighton, Sussex BNI 9RH
United Kingdom

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