The Agency Structure of Loan Syndicates

Abstract

The aim of this paper is to analyze the agency structure of loan syndicates in light of two alternative hypotheses. On one hand, the specialization hypothesis, consistent with Das and Nanda (1999), claims that multiple co-agents arise in loan syndicates because of the different competitive advantages they have for performing all the administrative tasks. On the other hand, the monitoring hypothesis states that multiple co-agents in loan syndicates are the result of the delegation of monitoring that mitigates informational asymmetry problems, as put forward by Strausz (1997). These alternative explanations induce different correlations between the agency structure of the syndicate and observable characteristics of the syndicated loan agreement. We derive testable implications and test them using the large-scale Dealscan database. We find strong evidence supporting the specialization hypothesis whereas results concerning the monitoring hypothesis are mixed.

Keywords: banking, loan syndication, specialization, monitoring

JEL Classification: G21