Who lends to riskier and lower-profitability firms? Evidence from the syndicated loan market

Maria Iosifidi and Sotirios Kokas

Journal of Banking & Finance, 2015, vol. 61, issue S1, S14-S21

Abstract: This paper exploits a unique data set on bank–firm relationships based on syndicated loan deals to examine the effect of banks’ credit risk and capital on firms’ risk and performance. Our data set is a multilevel cross-section, which essentially allows controlling for all bank and firm characteristics through respective fixed effects, thus avoiding concerns regarding omitted variables. We find that banks with higher credit risk are associated with more risky firms, with lower profitability and market value. In turn, we find that banks with higher risk-weighted capital ratios lend to riskier firms with less market value. Our results are indicative of a strong adverse selection mechanism and highlight the need to monitor the risky banks more closely, especially as we consider large and influential syndicated loan deals.

Keywords: Bank–firm relationships; Risk; Performance; Syndicated loans (search for similar items in EconPapers)
JEL-codes: G20 G21 G30 G32 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:61:y:2015:i:s1:p:s14-s21

DOI: 10.1016/j.jbankfin.2015.02.008

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