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Tranching in the syndicated loan market around the world

Author

Listed:
  • Douglas Cumming

    (Florida Atlantic University
    University of Birmingham)

  • Florencio Lopez-de-Silanes

    (Université Côte d’Azur and NBER)

  • Joseph A McCahery

    (Tilburg University and ECGI)

  • Armin Schwienbacher

    (Université Côte d’Azur)

Abstract

Loan tranching allows banks to manage risk and facilitate firm financing, which may be essential for firms that cannot access investors from stock markets. We analyze the determinants and benefits of loan tranching by pooling the tranches of individual loans to create the largest cross-country sample of syndicated loans, covering more than 150,000 loans from multinational and domestic firms. We find that, in addition to market, deal, and borrower characteristics, legal and institutional differences impact loan tranching. Strong creditor protection and efficient debt collection increase the probability of tranching and reduce tranche spreads, ultimately promoting firms’ access to debt. We also find evidence that tranching facilitates the financing of multinational firms abroad due to the transfer of legal and cultural institutions to foreign subsidiaries. Overall, our results suggest that tranching plays an important role in reducing a country’s financial development gap and promotes firms’ access to debt.

Suggested Citation

  • Douglas Cumming & Florencio Lopez-de-Silanes & Joseph A McCahery & Armin Schwienbacher, 2020. "Tranching in the syndicated loan market around the world," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(1), pages 95-120, February.
    • Handle: RePEc:pal:jintbs:v:51:y:2020:i:1:d:10.1057_s41267-019-00249-1
    DOI: 10.1057/s41267-019-00249-1
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    6. Bermpei, Theodora & Degl’Innocenti, Marta & Kalyvas, Antonios Nikolaos & Zhou, Si, 2023. "Lender individualism and monitoring: Evidence from syndicated loans," Journal of Financial Stability, Elsevier, vol. 66(C).

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