Relationship Banking and Loan Syndicate Structure: The Role of Private Equity Sponsors

Rongbing Huang, Donghang Zhang and Yijia (Eddie) Zhao

The Financial Review, 2018, vol. 53, issue 3, 461-498

Abstract: Using a sample of syndicated loans to private equity (PE)‐backed initial public offering companies, we examine how a third‐party bank relationship influences the syndicate structure of a loan. We find that a stronger relationship between the lead bank and the borrower's PE firm enables the lead bank to retain a smaller share of the loan and form a larger and less concentrated syndicate, especially when the borrower is less transparent. A stronger PE‐bank relationship also attracts greater foreign bank participation. Our findings suggest that the lead bank's relationship with a large equity holder of the borrower facilitates information production in lending.

Date: 2018
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