The Informational Role of the Media in Private Lending

We investigate whether a borrower's media coverage influences the syndicated loan origination and participation decisions of informationally disadvantaged lenders, loan syndicate structures, and interest spreads. In syndicated loan deals, information asymmetries can exist between lenders that have a relationship with a borrower and less informed, nonrelationship lenders competing to serve as lead arranger on a syndicated loan, and also between lead arrangers and less informed syndicate participants. Theory suggests that the aggressiveness with which less informed lenders compete for a loan deal increases in the sentiment of public information signals about a borrower. We extend this theory to syndicated loans and hypothesize that the likelihood of less informed lenders serving as the lead arranger or joining a loan syndicate is increasing in the sentiment of media‐initiated, borrower‐specific articles published prior to loan origination. We find that as media sentiment increases (1) outside, nonrelationship lenders have a higher probability of originating loans; (2) syndicate participants are less likely to have a previous relationship with the borrower or lead bank; (3) lead banks retain a lower percentage of loans; and (4) loan spreads decrease.     

Price Discovery and Dissemination of Private Information by Loan Syndicate Participants

We delineate key channels through which flows of confidential information to loan syndicate participants impact the dynamics of information arrival in prices. We isolate the timing of private information flows by estimating the speed of price discovery over quarterly earnings cycles in both secondary syndicated loan and equity markets. We identify borrowers disseminating private information to lenders relatively early in the cycle with firms exhibiting relatively early price discovery in the secondary loan market, documenting that price discovery is faster for loans subject to financial covenants, particularly earnings‐based covenants; for borrowers who experience covenant violations; for borrowers with high credit risk; and for loans syndicated by relationship‐based lenders or highly reputable lead arrangers. We then ask whether early access to private information in the loan market accelerates the speed of information arrival in stock prices. We document that the stock returns of firms identified with earlier private information dissemination to lenders indeed exhibit faster price discovery in the stock market, but only when institutional investors are involved in the firm's syndicated loans. Further, the positive relation between institutional lending and the speed of stock price discovery is more pronounced in relatively weak public disclosure environments. These results are consistent with institutional lenders systematically exploiting confidential syndicate information via trading in the equity market.     

Relationship Banking and Loan Syndicate Structure: The Role of Private Equity Sponsors

Using a sample of syndicated loans to private equity (PE)‐backed initial public offering companies, we examine how a third‐party bank relationship influences the syndicate structure of a loan. We find that a stronger relationship between the lead bank and the borrower's PE firm enables the lead bank to retain a smaller share of the loan and form a larger and less concentrated syndicate, especially when the borrower is less transparent. A stronger PE‐bank relationship also attracts greater foreign bank participation. Our findings suggest that the lead bank's relationship with a large equity holder of the borrower facilitates information production in lending.     

Are current syndicated loan alliances related to past alliances?

The odds of a current syndicate relationship between two lenders depend upon their previous alliances. The odds are significantly higher [lower] and strongest for a current lead–participant relationship with a continuation [reversal] of their previous roles. To illustrate, the odds are nearly four times higher when two lenders have allied in the previous 5 years. The strength of lead–participant syndicate relationships between two lenders with same-ordered roles is most sensitive to the lead bank’s reputation and informationally opaque participants tend to have stronger relationships with lead banks. Lenders exhibit home bias in their syndicate alliances since ongoing relationships are stronger with domestic counterparts.     

Information Asymmetry and Financing Arrangements: Evidence from Syndicated Loans

I empirically explore the syndicated loan market, with an emphasis on how information asymmetry between lenders and borrowers influences syndicate structure and on which lenders become syndicate members. Consistent with moral hazard in monitoring, the lead bank retains a larger share of the loan and forms a more concentrated syndicate when the borrower requires more intense monitoring and due diligence. When information asymmetry between the borrower and lenders is potentially severe, participant lenders are closer to the borrower, both geographically and in terms of previous lending relationships. Lead bank and borrower reputation mitigates, but does not eliminate information asymmetry problems.     

CEO Risk‐taking Incentives and Bank Loan Syndicate Structure

This paper investigates the effects of a borrowing firm's CEO risk‐taking incentives on the structure of the firm's syndicated loans. When CEO risk‐taking incentives are high, syndicates are structured to facilitate better due diligence and monitoring efforts. These syndicates have a smaller number of total lenders and are more concentrated, and lead arrangers will retain a greater portion of the loan. Moreover, CEO risk‐taking incentives have a lesser effect on the syndicate structure when lead arrangers have a good reputation and a prior lending relationship with a borrowing firm, while they have a greater effect on the syndicate structure when borrowing firms have low information transparency, are financially distressed or have low growth prospects.     

On syndicate composition, corporate structure and the certification effect of credit ratings

We assess the relative importance of ratings versus stock exchange listings in reducing information asymmetry using a dataset of syndicated loans to public and private firms in the UK. We find that the certification effect of ratings is largest for private firms and that syndicates are smallest if firms are privately held or unrated. Moreover, we find that the marginal effect of being stock exchange listed is insignificant once these firms are rated. Exploiting the heterogeneity among lenders, we find that especially foreign bank and non-bank investors do not provide capital if firms are unrated. Our paper highlights the information produced by rating agencies as an important mechanism by which ratings improve access to capital. Our results also emphasize the importance of syndicate moral hazard on the supply of uninformed capital: bank-borrower relationships significantly increase the loan share syndicated to investors particularly if firms are not listed and unrated.     

Syndicated Loans

This paper analyzes the market for syndicated loans, a hybrid of private and public debt, which has grown at well over a 20% rate annually over the past decade and which totaled over $1 trillion in 1997. We identify empirically the factors that influence a bank or nonbank's decision to syndicate a loan and the determinants of the proportion of the loan sold in the event of syndication. The evidence reveals a loan is more likely to be syndicated as information about the borrower becomes more transparent, as the syndicate's managing agent becomes more “reputable”, and as the loan's maturity increases. The lead manager holds larger proportions of information-problematic loans in its own portfolio. Loan syndications, like loan sales, appear to be motivated, in part, by capital regulations, and the liquidity position of the agent bank influences the likelihood of syndication, but not the extent. Our results confirm that information and agency problems affect the salability of debt claims and the extent to which a loan is “transaction oriented” rather than “relationship oriented” in the sense of A. Boot and A. Thakor (2000, J. Finance54, 679–713). Journal of Economic Literature Classification Numbers: D82, G20, G21, G24.     

Liquidity risk and syndicate structure

We decompose syndicated loan risk into credit, market, and liquidity risk and test how these shape syndicate structure. Commercial banks dominate relative to non-banks in loan syndicates that expose lenders to liquidity risk. This dominance is most pronounced when borrowers have high levels of credit or market risk. We then tie commercial banks’ advantage in liquidity risk to access to transactions deposits by comparing investments across banks. The results suggest that risk-management considerations matter most for participants relative to lead arrangers. Links from transactions deposits to liquidity exposure, for instance, are more than 50% larger at participants than at lead arrangers.     

Financial distress,information asymmetry,and syndicate structure: Evidence from Japanese borrowers

This paper examines how borrower firm characteristics affect syndicate size structure in the Japanese loan market for the 1999–2003 period when the banking system is undergoing a major consolidation. We find that syndicates are smaller when borrowers have higher credit risk and when borrowers present larger information asymmetries to the lending group. Interestingly, however, these results are primarily driven by keiretsu (business group) firms. This suggests that the benefits of enhanced monitoring and superior renegotiation prospects are especially useful for banks participating in syndicated loans to Keiretsu firms in Japan rather than informationally opaque, independent firms.     

The Debt-Contracting Value of Accounting Information and Loan Syndicate Structure

We investigate how both the ownership structure and explicit contractual structure of syndicated loan deals are shaped by the debt‐contracting value (DCV) of borrowers' accounting information. DCV captures the inherent ability of firms' accounting numbers to capture credit quality deterioration in a timely fashion. We hypothesize and document that when a borrower's accounting information possesses higher DCV, information asymmetry between the lead arranger and other syndicate participants is lower, allowing lead arrangers to hold a smaller proportion of new loan deals. Further, we document that the influence of DCV on the proportion of the loan retained is conditional on the lead arranger's reputation, the existence of a credit rating, and the lead arranger's previous relationships with the same borrower. Finally, we find that when loans include performance pricing provisions, the likelihood that the single performance measure used is an accounting ratio, rather than a credit rating, is increasing in DCV.     

Why Larger Lenders Obtain Higher Returns: Evidence from Sovereign Syndicated Loans

Lenders who make large funding commitments earn higher rates of return than those who make smaller commitments. We analyze a data set of sovereign syndicated loan contracts to document study and this phenomenon. We show that the “large lenders” in the lending syndicates earn a “return premium,” which is positively affected by the likelihood of future liquidity problems of the borrower. This finding suggests that the onus would be on the large lenders in particular to provide services, such as liquidity insurance and coordinating the workout. The return premium also increases in the fraction of banks among the larger syndicate members, suggesting that banks are special lenders in terms of addressing idiosyncratic liquidity problems.     

The Informational Efficiency of the Equity Market As Compared to the Syndicated Bank Loan Market

The loan market is a hybrid between a public and a private market, comprised of financial institutions with access to private information about borrowing firms. We test whether this is reflected in informationally efficient price formation in the loan market vis-a-vis the equity markets, and reject this private information hypothesis. We also reject a liquidity hypothesis which suggests that equity markets always lead loan markets, despite bank lenders' access to private information, because of greater liquidity in equity markets. We further test, and reject, an asymmetric price reaction hypothesis that states that loan returns are more sensitive to negative information whereas equity returns respond symmetrically to both positive and negative information. We find evidence most consistent with an integrated markets hypothesis that suggests that both the equity and syndicated bank loan markets are highly integrated such that information flows freely across markets. This is particularly true when the equity market makers are also loan syndicate members.      

Constraints on Loan Sales and the Price of Liquidity

In the syndicated loan market, borrowers and syndicate arrangers sometimes employ contractual restrictions that influence a loan’s liquidity. We analyze two types of constraints on loan resales: (1) prior consent constraints implemented by the borrower or the syndicate’s lead arranger and (2) a minimum denomination requirement for loan sales. We hypothesize that constraints could be mechanisms for fostering relationships and/or facilitating the resolution of financial distress and find some support for each notion. We find that resale constraints are more likely when borrowers are small and have relatively poor credit ratings. We also find that loans with any type of constraint have higher all-in-spreads and are more likely to be secured than unconstrained loans and that the marginal cost of constraining liquidity is relatively high.

Financial Institutions Network and the Certification Value of Bank Loans

Social networks play an important role in mitigating informational frictions related to financial intermediation, especially bank lending. We investigate the effect of the network of financial institutions on the certification value of bank loans using data on syndicated loans to European companies. We find that the presence of more central leaders in a syndicate substantially increases the stock market's reaction to loan announcements. This certification value is reinforced when informational frictions are more important but vanishes when there are severe disruptions in the functioning of financial markets, such as during the financial crisis of 2008.     

Within-syndicate conflicts,loan covenants,and syndicate formation

We study how conflicts within a lending syndicate affect loan contract and syndicate formation. We argue that loan provisions serve an important dual function: In addition to moderating borrower–lender conflicts, they reduce within-syndicate conflicts. We show that greater potential for within-syndicate conflicts is associated with more and stricter covenants. Loans are less restrictive when the interests of participants and the lead arrangers are better aligned, for example, when participant–banks have stronger relationships with the lead arranger or hold borrower's equity (indirectly). Overall, our results show that covenant choice, syndicate formation, and lead arranger's loan allocation all play an important role in reducing within-syndicate conflicts.     

Securitization without adverse selection: The case of CLOs

In this paper, we investigate whether securitization was associated with risky lending in the corporate loan market by examining the performance of individual loans held by collateralized loan obligations. We employ two different data sets that identify loan holdings for a large set of CLOs and find that adverse selection problems in corporate loan securitizations are less severe than commonly believed. Using a battery of performance tests, we find that loans securitized before 2005 performed no worse than comparable unsecuritized loans originated by the same bank. Even loans originated by the bank that acts as the CLO underwriter do not show under-performance relative to the rest of the CLO portfolio. While some evidence exists of under-performance for securitized loans originated between 2005 and 2007, it is not consistent across samples, performance measures, and horizons. Overall, we argue that the securitization of corporate loans is fundamentally different from securitization of other assets classes because securitized loans are fractions of syndicated loans. Therefore, mechanisms used to align incentives in a lending syndicate are likely to reduce adverse selection in the choice of CLO collateral.     

Syndication of European Buyouts and its Effects on Target‐Firm Performance

Using a unique dataset of 859 leveraged buyouts in Europe during the period 1999–2009, the authors' recent study reports that buyout financiers syndicate their transactions to other buyers to achieve benefits that include diversification of different types of target risk, the combination of complementary investor information and skillsets, and an increase in future deal flow. The authors also report that lead financiers structure their syndicates in ways designed to minimize syndication costs, in particular potential information and incentive problems with co‐investors in the syndicate, while also aiming to maximize the syndication benefits mentioned above. For example, through effective management of conflicts of interest with co‐investors within their syndicates, lead financiers are likely to acquire a reputation for looking out for the interests of their co‐investors that ends up increasing their own deal flow. As additional evidence in support of this claim, the authors also report finding that the post‐buyout profitability and growth of the target companies are higher when buyouts are syndicated (even after adjusting for the “endogeneity” of such decisions) and when the syndicates are structured to limit inter‐investor conflicts of interest within the syndicate. And as the authors point out, this finding, when viewed with the other main findings cited above, provides a more positive view of European buyout syndicates than the one projected by studies of Anglo‐American syndicates to date, whose findings have emphasized the potential for collusion among the buyout financiers.     

Endogenous networks in investment syndication

As an effective investment strategy, investors often invest jointly in a company by forming a syndicate. The unique feature of this paper is that it endogenizes the formation of an investment syndicate. We provide a theory on the endogenous formation of networks in investment syndication and analyze how several key factors such as risk aversion, productivity, risk and cost affect incentive and syndicated investment. We also apply the theory to venture capital investment and identify empirical evidence in support of it.     

疫情对企业融资的影响研究--来自银团贷款市场的经验证据

新冠肺炎疫情在全球蔓延,引发市场对企业经营、融资等问题的担忧。为进一步做好金融支持疫情防控工作、维护疫情期间金融市场稳定,本文通过研究历史视角下疫情对企业融资的影响机制,提出疫情防控期间金融支持相关的政策建议。本文利用1990-2018年汤森路透Dealscan数据库公布的企业银团贷款数据和手工收集全球重大疫情数据,实证研究了疫情对企业银团贷款的影响机制。研究发现:疫情发生后,企业银团贷款利率和贷款额度均显著增加,而银团贷款期限没有表现出显著变化。在考虑不同期限疫情观测时间窗和政策利率的滞后性影响等因素后,该结论依然成立。疫情对企业银团贷款的影响渠道包括避险情绪和融资流动性等。进一步研究发现,疫情期间政策利率调控效果有限,不同国家和地区的企业融资受疫情的影响存在差异。基于此,本文认为金融监管部门应进一步加大对企业信贷利率支持力度,完善货币政策有效性评估及动态调整机制,及时疏通货币政策传导,约谈恶意抬高信贷利率的金融机构,同时强化与财政、产业等政策的协调机制,合力支持疫情防控,维护经济金融稳定。