The pricing effect of certification on syndicated loans

Dario Focarelli, Alberto Franco Pozzolo () and Luca Casolaro

Journal of Monetary Economics, 2008, vol. 55, issue 2, pages 335-349

Abstract: To verify if a delegated monitor can certify its ability to perform its assigned tasks, we test whether syndicated loans in which a larger share of the facility is retained by the arranger have lower interest rates. For a large sample of syndicated loans in over 80 countries we find that this certification effect exists and is greater for facilities characterized by greater due diligence and monitoring efforts. Further, for listed companies the announcement effect of the new loan on the stock price is an increasing function of the portions of the loan retained by the arranger.

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Journal of Monetary Economics is edited by R. G. King and C. I. Plosser

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