Is the Corporate Loan Market Globally Integrated? A Pricing Puzzle

47 Pages Posted: 6 Sep 2004

See all articles by Greg Nini

Greg Nini

Drexel University - Department of Finance

Mark Carey

Board of Governors of the Federal Reserve - Division of International Finance (IFDP) - International Banking Section

Date Written: August 2004

Abstract

We offer evidence that interest rate spreads on syndicated loans to corporate borrowers are economically significantly smaller in Europe than in the U.S., other things equal. Differences in borrower, loan and lender characteristics associated with equilibrium mechanisms suggested in the literature do not appear to explain the phenomenon. Borrowers overwhelmingly issue in their natural home market and bank portfolios display significant home "bias." This may explain why pricing discrepancies are not competed away, but the fundamental causes of the discrepancies remain a puzzle. Thus, important determinants of loan origination market outcomes remain to be identified, home "bias" appears to be material for pricing, and corporate financing costs differ in Europe and the U.S.

Keywords: Loans, corporate debt, home bias, market integration, globalization

JEL Classification: G30, G20, G15

Suggested Citation

Nini, Gregory and Carey, Mark, Is the Corporate Loan Market Globally Integrated? A Pricing Puzzle (August 2004). FRB International Finance Discussion Paper No. 813. Available at SSRN: https://ssrn.com/abstract=585742 or http://dx.doi.org/10.2139/ssrn.585742

Gregory Nini

Drexel University - Department of Finance ( email )

LeBow College of Business
Philadelphia, PA 19104
United States

Mark Carey (Contact Author)

Board of Governors of the Federal Reserve - Division of International Finance (IFDP) - International Banking Section ( email )

20th & C Streets NW
Washington, DC 20551
United States
202-452-2784 (Phone)
202-452-5295 (Fax)

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