Within-syndicate conflicts,loan covenants,and syndicate formation |
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| Authors: | Nishant Dass Vikram Nanda Qinghai Wang |
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| Institution: | 1. Scheller College of Business, Georgia Institute of Technology, Atlanta, Georgia;2. Jindal School of Management, University of Texas at Dallas, Richardson, Texas;3. College of Business, University of Central Florida, Orlando, Florida |
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| Abstract: | 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. |
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| Keywords: | bank loans conflicts of interest covenants lending syndicate monitoring |
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