Hold-up in Syndicated Lending: Why Do Bank Relationships Lead to Higher Costs for High-Quality Firms?

Aurore Burietz, Kim Oosterlinck and Ariane Szafarz

No 25-005, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: A relationship-based hold-up effect is a phenomenon in which lenders offer unfavorable credit terms to their loyal customers. The present study focuses on the syndicated loan market. While all syndicate members benefit from the loan, only the lead lenders incur the reputational costs associated with a hold-up. It is hypothesized that, in contrast to the case with a single lender, hold-ups in the syndicated loan market more frequently impact high-quality borrowers. This is attributed to the fact that the advantages associated with lending to these borrowers outweigh the potential credit and reputational risks. Utilizing LPC Dealscan data on 24,972 syndicated loans from 1998 to 2023, the empirical study validates the hypothesis that high-quality borrowers encounter hold-ups. Our results are robust to multiple tests and suggest that the manifestation of a hold-up effect is contingent on the configuration of the lending side of the transaction.

Keywords: Lending relationship; Hold-up effect; Syndicated loans; Lender’s reputation; Credit risk (search for similar items in EconPapers)
JEL-codes: D82 E43 G21 G24 (search for similar items in EconPapers)
Date: 2025-06-27
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