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A Comparison of Syndicated Loan Pricing at Investment and Commercial Banks

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  • Maretno Harjoto
  • Donald Mullineaux
  • Ha-Chin Yi
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    Abstract

    We reject the hypothesis that investment and commercial banks have identical loan-pricing policies. We find that compared to commercial banks, investment banks lend to less profitable, more leveraged firms, price riskier classes of term loans more generously, and offer relativelylonger-term credits, usually with term, not commitment contracts. Investment banks typically establish higher credit spreads, although the premium declines when a commercial bank joins as syndicate co-arranger. Investment banks also price riskier classes of term loans more generously to borrowers than do commercial banks. Commercial-bank funding advantages do not appear to be a source of the pricing differences.

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    Bibliographic Info

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

    Volume (Year): 35 (2006)
    Issue (Month): 4 (Winter)
    Pages:

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    Handle: RePEc:fma:fmanag:harjotomullineauxyi06

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    Cited by:
    1. Mark Pyles & Donald Mullineax, 2008. "Constraints on Loan Sales and the Price of Liquidity," Journal of Financial Services Research, Springer, vol. 33(1), pages 21-36, February.
    2. Haselmann, Rainer & Wachtel, Paul, 2011. "Foreign banks in syndicated loan markets," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2679-2689, October.
    3. Champagne, Claudia & Coggins, Frank, 2012. "Common information asymmetry factors in syndicated loan structures," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1437-1451.
    4. Karima Bouaiss & Catherine Refait-Alexandre, 2009. "La structure des crédits syndiqués comme défense contre les problèmes informationnels - Une analyse empirique sur le marché français," Revue Finance Contrôle Stratégie, revues.org, vol. 12(2), pages 35-68, June.
    5. Norden, L. & Wagner, W.B., 2007. "Credit Derivatives and Loan Pricing," Discussion Paper 2007-015, Tilburg University, Tilburg Law and Economic Center.
    6. Gupta, Anurag & Singh, Ajai K. & Zebedee, Allan A., 2008. "Liquidity in the pricing of syndicated loans," Journal of Financial Markets, Elsevier, vol. 11(4), pages 339-376, November.
    7. 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.
    8. Godlewski, Christophe, 2008. "Duration of loan arrangement and syndicate organization," MPRA Paper 10953, University Library of Munich, Germany.
    9. Norden, Lars & Silva Buston, Consuelo & Wagner, Wolf, 2014. "Financial innovation and bank behavior: Evidence from credit markets," Journal of Economic Dynamics and Control, Elsevier, vol. 43(C), pages 130-145.
    10. Maskara, Pankaj Kumar, 2010. "Economic value in tranching of syndicated loans," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 946-955, May.
    11. Khieu, Hinh D. & Mullineaux, Donald J. & Yi, Ha-Chin, 2012. "The determinants of bank loan recovery rates," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 923-933.

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