The effects of reputation and relationships on lead banks' certification roles

Viet Do and Tram Vu

Journal of International Financial Markets, Institutions and Money, 2010, vol. 20, issue 5, 475-489

Abstract: We investigate the certification roles of lead bank retention in US syndicated loans with respect to interest rates, then explore how lead banks' reputation and previous relationships with the borrower alter such certification effects. Our findings support the certification hypothesis. Loan spreads are found to decrease with a higher retention ratio, after controlling for the endogeneity of loan price and retention. The magnitude of certification effect is reduced when the lead bank is a more reputable lender and when there are prior bank-borrower relationships. Lead bank reputation and prior lending relationships can therefore substitute for the need to certify.

Keywords: Asymmetric; information; Certification; effects; Reputation; Lending; relationships; Loan; syndication (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:20:y:2010:i:5:p:475-489

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