The Impact of Lending Relationships on the Lead Arrangers’ Retained Share
(2023) In International Journal of Financial Studies 11(4).- Abstract
The lead arrangers of syndicated loans often have lending relationships with the borrowers, while other lenders participating in the syndicate largely engage in an arm’s length transaction. Relatively little is known about how these relationships affect the shares of syndicated loans that the lead arrangers retain in their portfolio. Using a random sample of 10,328 syndicated loans made to 7316 nonfinancial U.S. firms over the period 1987 to 2013, this paper investigates the impact of lending relationships on the shares of loans retained. The results show that lending relationships are associated with a significant reduction in retained shares. These results are robust to alternative estimation techniques, such as propensity score... (More)
The lead arrangers of syndicated loans often have lending relationships with the borrowers, while other lenders participating in the syndicate largely engage in an arm’s length transaction. Relatively little is known about how these relationships affect the shares of syndicated loans that the lead arrangers retain in their portfolio. Using a random sample of 10,328 syndicated loans made to 7316 nonfinancial U.S. firms over the period 1987 to 2013, this paper investigates the impact of lending relationships on the shares of loans retained. The results show that lending relationships are associated with a significant reduction in retained shares. These results are robust to alternative estimation techniques, such as propensity score matching and binary endogenous treatment models, which are employed to address endogeneity concerns. Furthermore, the results provide additional evidence that the existence and strength of lending relationships lead to decreased retained shares, particularly for non-top-tier lead arrangers. Moreover, the findings also demonstrate that when lead arrangers have lending relationships with borrowers, they retain significantly smaller shares whether the loans are made to informationally opaque, small, or speculative-grade-rating firms. Overall, the findings of this paper have important implications for lenders seeking to reduce their risk exposure in syndicated loans.
(Less)
- author
- Chala, Alemu Tulu LU
- organization
- publishing date
- 2023-12
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- lending relationships, retained share, syndicated lending
- in
- International Journal of Financial Studies
- volume
- 11
- issue
- 4
- article number
- 119
- publisher
- MDPI AG
- external identifiers
-
- scopus:85180180793
- ISSN
- 2227-7072
- DOI
- 10.3390/ijfs11040119
- language
- English
- LU publication?
- yes
- id
- baf9c87d-2460-486d-93dd-43d653e5bb1e
- date added to LUP
- 2024-01-04 11:52:48
- date last changed
- 2024-02-01 09:58:38
@article{baf9c87d-2460-486d-93dd-43d653e5bb1e,
abstract = {{<p>The lead arrangers of syndicated loans often have lending relationships with the borrowers, while other lenders participating in the syndicate largely engage in an arm’s length transaction. Relatively little is known about how these relationships affect the shares of syndicated loans that the lead arrangers retain in their portfolio. Using a random sample of 10,328 syndicated loans made to 7316 nonfinancial U.S. firms over the period 1987 to 2013, this paper investigates the impact of lending relationships on the shares of loans retained. The results show that lending relationships are associated with a significant reduction in retained shares. These results are robust to alternative estimation techniques, such as propensity score matching and binary endogenous treatment models, which are employed to address endogeneity concerns. Furthermore, the results provide additional evidence that the existence and strength of lending relationships lead to decreased retained shares, particularly for non-top-tier lead arrangers. Moreover, the findings also demonstrate that when lead arrangers have lending relationships with borrowers, they retain significantly smaller shares whether the loans are made to informationally opaque, small, or speculative-grade-rating firms. Overall, the findings of this paper have important implications for lenders seeking to reduce their risk exposure in syndicated loans.</p>}},
author = {{Chala, Alemu Tulu}},
issn = {{2227-7072}},
keywords = {{lending relationships; retained share; syndicated lending}},
language = {{eng}},
number = {{4}},
publisher = {{MDPI AG}},
series = {{International Journal of Financial Studies}},
title = {{The Impact of Lending Relationships on the Lead Arrangers’ Retained Share}},
url = {{http://dx.doi.org/10.3390/ijfs11040119}},
doi = {{10.3390/ijfs11040119}},
volume = {{11}},
year = {{2023}},
}