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Credit Conditions When Lenders Are Commonly Owned

Mattia Colombo, Laura Grigolon and Emanuele Tarantino

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We investigate how common ownership between lenders affects the terms of syndicated loans. We provide a novel view on common ownership as a mechanism to mitigate the effects of information asymmetry on borrowers' quality. As the lead bank does not need to signal the quality of the borrower by means of dissipative signals, high common ownership should have a negative impact on loan rates, the share of the loan retained by the lead bank, and the dispersion in loan returns. We empirically verify all three predictions, leveraging on differences in the level of common ownership across lenders and facilities within a loan. Common ownership affects the terms of the loan more strongly in presence of opaque or new borrowers, when the lead arranger is more likely to hold an information advantage over the syndicate members. As information flows from the lead arranger to syndicate members, we show that member-to-lead and member-to-member common ownership does not affect the terms of syndicated loans.

Keywords: common ownership; ownership; control; syndicated loans; loans; banking (search for similar items in EconPapers)
JEL-codes: G14 G21 L10 L11 (search for similar items in EconPapers)
Pages: 55
Date: 2021-03
New Economics Papers: this item is included in nep-ban and nep-cfn
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