Liquidity in the Pricing of Syndicated Loans

56 Pages Posted: 15 Mar 2006  

Anurag Gupta

Case Western Reserve University - Department of Banking & Finance

Ajai K. Singh

Department of Finance, University of Central Florida

Allan A. Zebedee

Clarkson University

Date Written: August 2006

Abstract

We examine whether banks price expected liquidity in U.S. syndicated term loans. Using extensive data we show that loans with higher expected liquidity have significantly lower spreads at origination, controlling for other determinants of loan spreads such as borrower, loan, syndicate and macroeconomic variables. A matched sample analysis of loans confirms our results. We therefore identify a new factor (expected liquidity) being priced in syndicated term loans, which results in annual savings of over $1.3 billion to the borrowers just in our sample. Thus, for the first time in the literature, we document a link between the secondary market liquidity of loans and their pricing in the primary market.

Keywords: Syndicated loans, loan secondary market, loan pricing, liquidity, loan trading

JEL Classification: G12, G21, G32

Suggested Citation

Gupta, Anurag and Singh, Ajai K. and Zebedee, Allan A., Liquidity in the Pricing of Syndicated Loans (August 2006). AFA 2007 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=891452 or http://dx.doi.org/10.2139/ssrn.891452

Anurag Gupta (Contact Author)

Case Western Reserve University - Department of Banking & Finance ( email )

10900 Euclid Ave.
Cleveland, OH 44106-7235
United States
216-368-2938 (Phone)
216-368-4776 (Fax)

Ajai K. Singh

Department of Finance, University of Central Florida ( email )

College of Business Administration
12744 Pegasus Drive
Orlando, FL 32816
United States
407-823-0761 (Phone)
407-823-6676 (Fax)

Allan A. Zebedee

Clarkson University ( email )

Potsdam, NY 13699-5780
United States
315.268.3890 (Phone)

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