Lending Relationships and the Pricing of Syndicated Loans

Donghang Zhang, Yafei Zhang () and Yijia (Eddie) Zhao ()
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Yafei Zhang: Alliance Manchester Business School, University of Manchester, Manchester M15 6PB, United Kingdom
Yijia (Eddie) Zhao: College of Management, University of Massachusetts Boston, Boston, Massachusetts 02125

Management Science, 2024, vol. 70, issue 2, 1113-1136

Abstract: Using a dataset on syndicated loan primary market pricing adjustments, we examine whether relationship banks’ information advantage facilitates price discovery in loan issuances. We find that the lead bank makes fewer adjustments to the initial pricing terms of a syndicated loan and shortens the syndication time when it has a stronger relationship with the borrower. A stronger relationship also reduces loan underpricing. A relationship lead bank relies less on information from syndicate members. Exogenous shocks to relationships caused by bank mergers and closures confirm our findings. We contribute to the literature by showing that relationship lending improves loan pricing efficiency.

Keywords: syndicated loan; lending relationship; primary market; loan underwriting; originate to distribute (OTD) (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:2:p:1113-1136

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