How do lead banks use their private information about loan quality in the syndicated loan market?

Lakshmi Balasubramanyan (), Allen N. Berger and Matthew M. Koepke

Journal of Financial Stability, 2019, vol. 43, issue C, 53-78

Abstract: We formulate and test hypotheses about how lead banks of syndicated loans use private information about loan quality, the Signaling and Sophisticated Syndicate Hypotheses. We measure private information using Shared National Credit (SNC) internal loan ratings made comparable using concordance tables. As outcomes, we use proportions of loans retained by lead banks from SNC and rate spreads on the loans from DealScan. We find favorable private information is associated with higher retention and lower spreads for pure term loans, supporting the Signaling Hypothesis. Only lower spreads occur for pure revolvers, likely because their syndicates more often include large sophisticated banks.

Keywords: Lead bank; Private information; Syndication (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: How Do Lead Banks Use Their Private Information about Loan Quality in the Syndicated Loan Market? (2017)
Working Paper: How Do Lead Banks Use Their Private Information about Loan Quality in the Syndicated Loan Market? (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:43:y:2019:i:c:p:53-78

DOI: 10.1016/j.jfs.2019.03.006

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