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Do Lead Banks Exploit Syndicate Participants? Evidence from Ex Post Risk

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  • Kamphol Panyagometh
  • Gordon S. Roberts
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    Abstract

    "Loan syndication involves a repeated game between lead banks and syndicate members. Lead banks do not use their private information to exploit syndicate participants but rather focus on accurately certifying loan quality. Using borrowers' financial ratios (shifts in Altman's Z scores) after origination to proxy for bank private information, we find that lead banks syndicate larger proportions of loans that subsequently do not experience lower Z scores. Performance pricing covenants under which borrowers commence to pay higher spreads if ratios (or credit ratings) deteriorate constitute a positive signal reducing agency costs and are associated with higher proportions of syndication." Copyright (c) 2010 Financial Management Association International.

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    Bibliographic Info

    Article provided by Financial Management Association International in its journal Financial Management.

    Volume (Year): 39 (2010)
    Issue (Month): 1 (03)
    Pages: 273-299

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    Handle: RePEc:bla:finmgt:v:39:y:2010:i:1:p:273-299

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    Cited by:
    1. Do, Viet & Vu, Tram, 2010. "The effects of reputation and relationships on lead banks' certification roles," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(5), pages 475-489, December.
    2. Champagne, Claudia & Coggins, Frank, 2012. "Common information asymmetry factors in syndicated loan structures," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1437-1451.
    3. Blaise Gadanecz & Alper Kara & Philip Molyneux, 2011. "The value of repeat lending," BIS Working Papers 350, Bank for International Settlements.
    4. Krishnan, Karthik, 2013. "Commercial banks getting underwriting business: Tying or business building?," Journal of Economics and Business, Elsevier, vol. 66(C), pages 47-75.
    5. Marie-Hélène Broihanne & Christophe Godlewski, 2014. "Building reputation on the syndicated lending market: A participant bank perspective," Working Papers of LaRGE Research Center 2014-02, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg (France).

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