Borrowing Beyond Borders: The Geography and Pricing of Syndicated Bank Loans

51 Pages Posted: 12 Mar 2007

See all articles by Joel F. Houston

Joel F. Houston

University of Florida - Department of Finance, Insurance and Real Estate

Jennifer Itzkowitz

Seton Hall University - Department of Finance & Legal Studies

Andy Naranjo

University of Florida - Warrington College of Business Administration

Date Written: March 2007

Abstract

We examine the global geography and pricing of the syndicated loan market using a sample of more than 13,000 loan packages issued to 4,713 firms headquartered across 10 countries during the 1998 to 2004 sample period. Our results provide insights into the relative importance of information costs, cross-country differences in legal and regulatory costs, and cross-country competition in bank lending. Consistent with Carey and Nini's (2006) pricing puzzle, we find that, on average, loans to European firms are significantly cheaper than loans to North American firms by approximately 40 basis points. However, we find that the price differences between these markets holds primarily for those firms that do not have complete access to European capital markets. That is, firms headquartered in North America with significant assets or sales in Europe get the European discount by using a European lead lender. At the same time, we find that large firms often pay lower rates when borrowing from a foreign lender. Interestingly, this result holds for both North American firms borrowing in Europe as well as for European firms borrowing in North America. Therefore, it appears that global competition has helped reduce borrowing costs for those firms that have greater access to global lending markets. Our finding that discounting on foreign loans to large firms occurs in a similar fashion in both Europe and North America also suggests that European lenders do not have a persistent competitive or regulatory advantage.

Keywords: Loan pricing, Global lending markets, Syndicated Loans

JEL Classification: F34, F36, G20

Suggested Citation

Houston, Joel F. and Itzkowitz, Jennifer and Naranjo, Andy, Borrowing Beyond Borders: The Geography and Pricing of Syndicated Bank Loans (March 2007). Available at SSRN: https://ssrn.com/abstract=969735 or http://dx.doi.org/10.2139/ssrn.969735

Joel F. Houston

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

Jennifer Itzkowitz

Seton Hall University - Department of Finance & Legal Studies ( email )

400 South Orange Avenue
South Orange, NJ 07079
United States

Andy Naranjo (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

P.O. Box 117168
Gainesville, FL 32611-7168
United States
352-392-3781 (Phone)

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