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Common information asymmetry factors in syndicated loan structures

Claudia Champagne and Frank Coggins

Journal of Banking & Finance, 2012, vol. 36, issue 5, 1437-1451

Abstract: This paper provides a comprehensive study of the syndicate structure and its relationship to information asymmetry and loan spread by using principal component analysis on a large set of 40 structure-related variables. A total of six structure components are identified and related to syndicate quality, syndicate members’ heterogeneity or share concentration, lead arranger’s characteristics, lead lender’s or syndicate’s location, lender–borrower relationships, and lead institution type. In multivariate settings, all six components are significant determinants of loan spread, either directly or indirectly through their impact on other components. Lead share retention, previous lender–borrower relationships and syndicate quality are shown to be bilaterally related to loan spread. Structure components differ regionally, which can provide an explanation for the European pricing discount observed in the literature. An Asian discount is observed and cannot be explained by structure differences.

Keywords: Syndicated loan market; Principal component analysis; Syndicate structure; Information asymmetry; European pricing discount (search for similar items in EconPapers)
JEL-codes: C31 C38 F34 G21 L14 (search for similar items in EconPapers)
Date: 2012
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Handle: RePEc:eee:jbfina:v:36:y:2012:i:5:p:1437-1451