The Value of Financial Intermediaries: Empirical Evidence from Syndicated Loans to Emerging Market Borrowers

33 Pages Posted: 29 Oct 2004

See all articles by Greg Nini

Greg Nini

Drexel University - Department of Finance

Date Written: September 2004

Abstract

Empirical estimates of the benefit of financial intermediation are constructed by examining the role played by local banks in facilitating syndicated loans to borrowers in emerging market countries. Assuming that local banks possess a superior monitoring ability, the market is ideal for studying the value of intermediation since cross-border lending into emerging markets is plagued by particularly high information and agency costs and the supply of local bank capital is in limited short run supply. Using variation in the propensity of local banks to participate in foreign arranged syndicates, there are two economically important results. First, local banks are much more likely to participate in unconditionally riskier loans. Second, after controlling for borrower characteristics, loan characteristics, and the endogeneity of the local bank lending decision, loans with local bank participation have spreads that are 10 percent lower (29 basis points) than otherwise similar loans. Combined, the results support the conclusion that local banks, a particularly special type of financial intermediary, provide value by considerably reducing financing costs, especially for riskier borrowers.

Keywords: Financial intermediation, bank loans, emerging market finance

JEL Classification: G20, G21, G15

Suggested Citation

Nini, Gregory, The Value of Financial Intermediaries: Empirical Evidence from Syndicated Loans to Emerging Market Borrowers (September 2004). FRB International Finance Discussion Paper No. 820. Available at SSRN: https://ssrn.com/abstract=610525 or http://dx.doi.org/10.2139/ssrn.610525

Gregory Nini (Contact Author)

Drexel University - Department of Finance ( email )

LeBow College of Business
Philadelphia, PA 19104
United States

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