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Lender exposure and effort in the syndicated loan market

Nada Mora ()

No RWP 10-12, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: This paper tests for agency problems between the lead arranger and syndicate participants in the syndicated loan market. One problem comes from adverse selection, whereby the lead arranger has a private informational advantage over participants. A second problem comes from moral hazard, whereby the lead arranger puts less effort in monitoring when it retains a smaller loan portion. Applying an instrumental variables strategy, I find that borrowers' performance is influenced by the lead's share. Dynamic tests extract active contributions made by the lead, supporting a monitoring interpretation. Loan covenants serve as a mechanism to induce the lead arranger to monitor.

Date: 2010
New Economics Papers: this item is included in nep-ban and nep-cta
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Journal Article: Lender Exposure and Effort in the Syndicated Loan Market (2015) Downloads
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