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- Title
Do Lead Banks Exploit Syndicate Participants? Evidence from Ex Post Risk.
- Authors
Panyagometh, Kamphol; Roberts, Gordon S.
- Abstract
Loan syndication involves a repeated game between lead banks and syndicate members. Lead banks do not use their private information to exploit syndicate participants but rather focus on accurately certifying loan quality. Using borrowers' financial ratios (shifts in Altman's Z scores) after origination to proxy for bank private information, we find that lead banks syndicate larger proportions of loans that subsequently do not experience lower Z scores. Performance pricing covenants under which borrowers commence to pay higher spreads if ratios (or credit ratings) deteriorate constitute a positive signal reducing agency costs and are associated with higher proportions of syndication.
- Subjects
SYNDICATED loans; SYNDICATES (Finance); FINANCIAL ratios; LOANS; AGENCY costs; BONDS (Finance); PORTFOLIO management (Investments); INFORMATION asymmetry; BANKING industry
- Publication
Financial Management (Wiley-Blackwell), 2010, Vol 39, Issue 1, p273
- ISSN
0046-3892
- Publication type
Article
- DOI
10.1111/j.1755-053X.2010.01073.x