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Bank monitoring: Evidence from syndicated loans

Matthew T. Gustafson, Ivan T. Ivanov and Ralf R. Meisenzahl

Journal of Financial Economics, 2021, vol. 139, issue 2, 452-477

Abstract: We directly measure banks’ monitoring of syndicated loans. Banks typically demand borrower information on at least a monthly basis. About 20% of loans involve active monitoring (i.e., site visits or third-party appraisals). Monitoring increases with the lead bank’s incentives and the value of information and is negatively associated with loan spreads and maturity. The monitoring captured by our measures can either complement or substitute for covenant-based monitoring, depending on whether the monitoring informs covenant compliance. Banks increase monitoring following deteriorations in borrower financial condition and credit line drawdowns. Finally, monitoring is positively related to future covenant violations and loan renegotiations.

Keywords: Bank monitoring; Syndicated loans (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jfineco.2020.08.017

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Handle: RePEc:eee:jfinec:v:139:y:2021:i:2:p:452-477