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Universal Banks and Corporate Control - Evidence from the Global Syndicated Loan Market

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Author Info
Miguel A. Ferreira () (Faculdade de Economia, Universidade Nova de Lisboa, Rua Marques da Fronteira 20, Lisboa, 1099-038, Portugal.)
Pedro Matos () (Marshall School of Business, University of Southern California, 3670 Trousdale Parkway, BRI 308, Los Angeles, CA 90089-0804, USA.)
Abstract

Banks play a role in the corporate governance of firms as well as acting as debt financiers around the world. Universal banks can have control over borrowing firms by representation on the board of directors or by holding shares through direct stakes or institutional holdings. We investigate the effects of these bank-firm governance links on the global syndicated loan market. We find that banks are more likely to act as lead arrangers, charge higher interest rate spreads and face less credit risk after origination when they have some role in firm’s governance. This increase in interest rate spread is less pronounced for borrowers with access to international capital markets. Our results are robust to several methods to correct for the endogeneity of the bank-firm governance link. Our findings suggest that the benefits of bank involvement in firms’ governance accrue mostly to the banks. JEL Classification: G21, G32.

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Paper provided by European Central Bank in its series Working Paper Series with number 1066.

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Length: 67 pages
Date of creation: Jul 2009
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Handle: RePEc:ecb:ecbwps:20091066

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Keywords: Universal banking; Syndicated loans; Corporate boards; Ownership.;

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