The Pricing Effect of Certification on Bank Loans: Evidence from the Syndicated Credit Market
AbstractThis paper provides a direct test of banks' ability to mitigate informational asymmetries. In syndicated loans, lenders' incentive to screen ex ante and monitor ex post borrowers increases with the share they retain; consequently, the higher this share, the less risky the loan is considered by investors, and the lower is the interest rate they require. We analyze a large sample of syndicated loans arranged in over 80 countries during the nineties. We find that interest rates decrease in the share of the facility retained by the arranger. This certification effect is greater for smaller, more opaque loans where screening and monitoring are more valuable.
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Bibliographic InfoPaper provided by University of Molise, Dept. EGSeI in its series Economics & Statistics Discussion Papers with number esdp03010.
Length: 32 pages
Date of creation: 18 Jul 2003
Date of revision:
Bank lending; Syndicated loans; Certification.;
Other versions of this item:
- Luca Casolaro & Dario Focarelli & Alberto Franco Pozzolo, 2003. "The pricing effect of certification on bank loans: evidence from the syndicated credit market," Proceedings 864, Federal Reserve Bank of Chicago.
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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