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Syndicated Lending: The Role of Relationships for the Retained Share

Chala, Alemu Tulu LU (2018) In Working Papers
Abstract
The finance literature offers ambiguous predictions about the impact of lending relationships on the share retained by lead arrangers in syndicated loans. While some literature indicates that lending relationships can help to alleviate post contractual agency conflicts, others imply that relationship lead arrangers may use their information advantage to exploit syndicate participants. Using syndicated loans made to U.S. firms, this article shows that lead arrangers retain a smaller share in lending relationships with firms. This result suggests that the agency-conflict-mitigating feature of a lending relationship outweighs the information-exploitation- facilitating feature. Consistent with the view that reputational concerns mitigate... (More)
The finance literature offers ambiguous predictions about the impact of lending relationships on the share retained by lead arrangers in syndicated loans. While some literature indicates that lending relationships can help to alleviate post contractual agency conflicts, others imply that relationship lead arrangers may use their information advantage to exploit syndicate participants. Using syndicated loans made to U.S. firms, this article shows that lead arrangers retain a smaller share in lending relationships with firms. This result suggests that the agency-conflict-mitigating feature of a lending relationship outweighs the information-exploitation- facilitating feature. Consistent with the view that reputational concerns mitigate agency conflicts and make relationships less relevant, the impact on the retained share is stronger for non-top-tier and smaller lead arrangers. This article also shows that the effect of lending relationships is concentrated in loan contracts that include covenants. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Working paper/Preprint
publication status
published
subject
keywords
Syndicated lending, Relationships, Retained share, D82, G21, G32
in
Working Papers
issue
2018:34
pages
51 pages
language
English
LU publication?
yes
id
df45b6cc-02a4-4259-ab55-cdf75a97efc4
alternative location
https://swopec.hhs.se/lunewp/abs/lunewp2018_034.htm
date added to LUP
2018-11-19 16:33:57
date last changed
2018-11-21 21:43:26
@misc{df45b6cc-02a4-4259-ab55-cdf75a97efc4,
  abstract     = {The finance literature offers ambiguous predictions about the impact of lending relationships on the share retained by lead arrangers in syndicated loans. While some literature indicates that lending relationships can help to alleviate post contractual agency conflicts, others imply that relationship lead arrangers may use their information advantage to exploit syndicate participants. Using syndicated loans made to U.S. firms, this article shows that lead arrangers retain a smaller share in lending relationships with firms. This result suggests that the agency-conflict-mitigating feature of a lending relationship outweighs the information-exploitation- facilitating feature. Consistent with the view that reputational concerns mitigate agency conflicts and make relationships less relevant, the impact on the retained share is stronger for non-top-tier and smaller lead arrangers. This article also shows that the effect of lending relationships is concentrated in loan contracts that include covenants.},
  author       = {Chala, Alemu Tulu},
  language     = {eng},
  note         = {Working Paper},
  number       = {2018:34},
  series       = {Working Papers},
  title        = {Syndicated Lending: The Role of Relationships for the Retained Share},
  url          = {https://swopec.hhs.se/lunewp/abs/lunewp2018_034.htm},
  year         = {2018},
}