Asymmetric Information Effects on Loan Spreads

42 Pages Posted: 18 Nov 2005 Last revised: 31 Jul 2009

See all articles by Victoria Ivashina

Victoria Ivashina

Harvard University; National Bureau of Economic Research (NBER)


This paper estimates the cost arising from information asymmetry between the lead bank and members of the lending syndicate. In a lending syndicate, the lead bank retains only a fraction of the loan but acts as the intermediary between the borrower and the syndicate participants. Theory predicts that private information in the hands of the lead bank will cause syndicate participants to demand a higher interest rate and that a large loan ownership by the lead bank should reduce asymmetric information and the related premium. Nevertheless, the estimated OLS relation between the loan spread and the lead bank's share is positive. This result, however, ignores the fact that we only observe equilibrium outcomes and, therefore, the asymmetric information premium demanded by participants is offset by the diversification premium demanded by the lead bank. Using exogenous shifts in the credit risk of the lead bank's loan portfolio as an instrument, I measure the asymmetric information effect of the lead's share on the loan spread and find that it has a large economic cost, accounting for approximately 4 percent of the total cost of credit.

Keywords: Banks, Syndicated loans, Asymmetric information

JEL Classification: G21, G22

Suggested Citation

Ivashina, Victoria, Asymmetric Information Effects on Loan Spreads. Journal of Financial Economics 92 (2009), pp. 300-319 , Available at SSRN: or

Victoria Ivashina (Contact Author)

Harvard University ( email )

Harvard Business School
Baker Library 233
Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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