Ownership dispersion across large shareholders and loan-syndicate structure

This study tests the relationship between ownership dispersion across large shareholders and the structure of loan syndicates. The results of an analysis of a set of bank loan contracts that were extended to Indonesian listed firms, from 1992 to 2016, show that an uneven ownership distribution between the largest controlling shareholder and multiple large shareholders is associated with a smaller and more concentrated syndicate. In line with the agency and moral hazard theoretical framework, the results suggest that in a weak legal system, when banks are lending to companies that are at a high risk of expropriation, they decrease the syndicate size and increase the syndicate concentration in order to intensify their efforts in due diligence and monitoring.