The effect of banks’ financial reporting on syndicated-loan structures |
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| Institution: | 1. Fisher College of Business, The Ohio State University, 2100 Neil Avenue, Columbus, OH 43210, United States;2. Rotman School of Management, University of Toronto, 105 St. George Street, Toronto, ON M5S 3E6, Canada;3. Carlson School of Management, University of Minnesota, 321 19th Avenue S., Minneapolis, MN 55455, United States;1. Tuck School of Business, Dartmouth College, 305 Tuck Hall, Hanover, NH 03755, United States;2. Terry College of Business, University of Georgia, Athens, GA 30605, United States;1. Terry College of Business, University of Georgia, USA;2. Edwin L. Cox School of Business, Southern Methodist University, USA;1. Smeal College of Business, Pennsylvania State University, PA, USA;2. Gies College of Business, University of Illinois at Urbana-Champaign, IL, USA;3. School of Accountancy, Shanghai University of Finance and Economics, Shanghai, PR China |
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| Abstract: | We explore how an accounting measure of information asymmetry between lead and participating lenders influences syndication structures by examining whether lead lenders’ commercial and industrial (C&I) loan-loss provision validity affects the fraction of loans they retain. We first conduct multiple tests showing that C&I provision validity reflects banks’ underlying screening and monitoring effectiveness. We then find lead lenders’ loan share decreases with C&I provision validity, but not with non-C&I provision validity. Consistent with an information effect, we further find this association is attenuated by (i) alternative information sources about the borrowers and (ii) previous lead/participant relationships and participant/borrower relationships. |
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