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Liquidity risk and syndicate structure

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  • Gatev, Evan
  • Strahan, Philip E.
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    Abstract

    We decompose syndicated loan risk into credit, market, and liquidity risk and test how these shape syndicate structure. Commercial banks dominate relative to non-banks in loan syndicates that expose lenders to liquidity risk. This dominance is most pronounced when borrowers have high levels of credit or market risk. We then tie commercial banks' advantage in liquidity risk to access to transactions deposits by comparing investments across banks. The results suggest that risk-management considerations matter most for participants relative to lead arrangers. Links from transactions deposits to liquidity exposure, for instance, are more than 50% larger at participants than at lead arrangers.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 93 (2009)
    Issue (Month): 3 (September)
    Pages: 490-504

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    Handle: RePEc:eee:jfinec:v:93:y:2009:i:3:p:490-504

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Liquidity Risk management Syndicated lending;

    References

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    1. Evan Gatev & Til Schuermann & Philip E. Strahan, 2009. "Managing Bank Liquidity Risk: How Deposit-Loan Synergies Vary with Market Conditions," Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 995-1020, March.
    2. Dennis, Steven A. & Mullineaux, Donald J., 2000. "Syndicated Loans," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 9(4), pages 404-426, October.
    3. Pennacchi, George, 2006. "Deposit insurance, bank regulation, and financial system risks," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(1), pages 1-30, January.
    4. Dong Lee & Bong-Chan Kho & Rene M. Stulz, 2000. "U.S. Banks, Crises, and Bailouts: From Mexico to LTCM," American Economic Review, American Economic Association, vol. 90(2), pages 28-31, May.
    5. Amir Sufi, 2007. "Information Asymmetry and Financing Arrangements: Evidence from Syndicated Loans," Journal of Finance, American Finance Association, vol. 62(2), pages 629-668, 04.
    6. Asim Ijaz Khwaja & Atif Mian, 2008. "Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market," American Economic Review, American Economic Association, vol. 98(4), pages 1413-42, September.
    7. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    8. Stewart C. Myers & Raghuram G. Rajan, 1998. "The Paradox Of Liquidity," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 113(3), pages 733-771, August.
    9. Evan Gatev & Philip E. Strahan, 2006. "Banks' Advantage in Hedging Liquidity Risk: Theory and Evidence from the Commercial Paper Market," Journal of Finance, American Finance Association, vol. 61(2), pages 867-892, 04.
    10. Franklin R. Edward, 1999. "Hedge Funds and the Collapse of Long-Term Capital Management," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 189-210, Spring.
    11. Sang Whi Lee & Donald J. Mullineaux, 2004. "Monitoring, Financial Distress, and the Structure of Commercial Lending Syndicates," Financial Management, Financial Management Association, Financial Management Association, vol. 33(3), Fall.
    12. Marc R. Saidenberg & Philip E. Strahan, 1999. "Are banks still important for financing large businesses?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 5(Jul).
    13. Craig Furfine, 2006. "The Costs and Benefits of Moral Suasion: Evidence from the Rescue of Long-Term Capital Management," The Journal of Business, University of Chicago Press, vol. 79(2), pages 593-622, March.
    14. Jonathan D. Jones & William W. Lang & Peter J. Nigro, 2005. "Agent Bank Behavior In Bank Loan Syndications," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 28(3), pages 385-402.
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    Cited by:
    1. Julian Caballero, 2012. "Banking Crises and Financial Integration," Research Department Publications 4816, Inter-American Development Bank, Research Department.
    2. Godlewski, Christophe J., 2014. "Bank loans and borrower value during the global financial crisis: Empirical evidence from France," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 28(C), pages 100-130.

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