Bank monitoring: Evidence from syndicated loans |
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| Authors: | Matthew T Gustafson Ivan T Ivanov Ralf R Meisenzahl |
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| Institution: | 1. Smeal College of Business, Penn State University, State College, PA 16801, USA;2. Federal Reserve Board, 20th Street and Constitution Avenue NW, Washington, DC 20551, USA;3. Federal Reserve Bank of Chicago, 230 S LaSalle St., Chicago, IL 60604, USA;1. Erasmus Scchool of Economics - Burgemeester Oudlaan 50, Erasmus University Rotterdam, Rotterdam PA 3062, the Netherlands;2. Tilburg University - Warandelaan 2, Tilburg AB 5037, the Netherlands;1. Department of Finance, Southern University of Science and Technology, 1088 Xueyuan Blvd., Shenzhen, Guangdong 518055, China;2. Department of Finance and Economics, Rutgers Business School, Rutgers University, 100 Rockafeller Road, Piscataway, NJ 08854, United States;3. Department of Finance, DePaul University, 1 E. Jackson Blvd., Suite 5500, Chicago, IL 60604, United States;1. Lundquist College of Business, University of Oregon, Eugene, OR 97403, United States;2. Department of Business & Information Technology, Missouri S&T, Rolla, MO 65409, United States;1. Geneva Finance Research Institute, University of Geneva and SFI, Uni Mail, Bd du Pont-d’Arve 42, Geneva 4 1211, Switzerland;2. Bocconi University, Via Roberto Sarfatti, 25, 20136 Milan, Italy;3. CEPR and ECGI, Italy;4. Booth School of Business, University of Chicago, Chicago, IL, United States;5. NBER, United States;1. Bendheim Center for Finance, Princeton University, 20 Washington Rd, Princeton, NJ 08540, United States;2. Department of Finance, MIT Sloan School of Management, 100 Main St, Cambridge, MA 02142, United States;3. University of Chicago Booth School of Business, 5807 S Woodlawn Ave, Chicago, IL 60637, United States |
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| Abstract: | We directly measure banks’ monitoring of syndicated loans. Banks typically demand borrower information on at least a monthly basis. About 20% of loans involve active monitoring (i.e., site visits or third-party appraisals). Monitoring increases with the lead bank’s incentives and the value of information and is negatively associated with loan spreads and maturity. The monitoring captured by our measures can either complement or substitute for covenant-based monitoring, depending on whether the monitoring informs covenant compliance. Banks increase monitoring following deteriorations in borrower financial condition and credit line drawdowns. Finally, monitoring is positively related to future covenant violations and loan renegotiations. |
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