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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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, Federal Reserve Bank of Chicago 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
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Angbazo, Lazarus A. & Mei, Jianping & Saunders, Anthony, 1998. "Credit spreads in the market for highly leveraged transaction loans," Journal of Banking & Finance, Elsevier, Elsevier, vol. 22(10-11), pages 1249-1282, October.
- James, Christopher, 1987. "Some evidence on the uniqueness of bank loans," Journal of Financial Economics, Elsevier, Elsevier, vol. 19(2), pages 217-235, December.
- Dario Focarelli & Fabio Panetta, 2002. "Are Mergers Beneficial to Consumers? Evidence from the Market for Bank Deposits," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 448, Bank of Italy, Economic Research and International Relations Area.
- White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, Econometric Society, vol. 48(4), pages 817-38, May.
- Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(4), pages 689-721, August.
- Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 51(3), pages 393-414, July.
- Gary Gorton & George Pennacchi, 1990.
"Banks and Loan Sales: Marketing Non-Marketable Assets,"
NBER Working Papers
3551, National Bureau of Economic Research, Inc.
- Gorton, Gary B. & Pennacchi, George G., 1995. "Banks and loan sales Marketing nonmarketable assets," Journal of Monetary Economics, Elsevier, Elsevier, vol. 35(3), pages 389-411, June.
- Gary Gorton & Andrew Winton, 2002.
NBER Working Papers
8928, National Bureau of Economic Research, Inc.
- Gary Gorton & Andrew Winton, 2002. "Financial Intermediation," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 02-28, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Katerina Simons, 1993. "Why do banks syndicate loans?," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue Jan, pages 45-52.
- Megginson, William L & Poulsen, Annette B & Sinkey, Joseph F, Jr, 1995. "Syndicated Loan Announcements and the Market Value of the Banking Firm," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 27(2), pages 457-75, May.
- Dennis, Steven A. & Mullineaux, Donald J., 2000. "Syndicated Loans," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 9(4), pages 404-426, October.
- Leland, Hayne E & Pyle, David H, 1977.
"Informational Asymmetries, Financial Structure, and Financial Intermediation,"
Journal of Finance, American Finance Association,
American Finance Association, vol. 32(2), pages 371-87, May.
- Hayne E. Leland and David H. Pyle., 1976. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Research Program in Finance Working Papers, University of California at Berkeley 41, University of California at Berkeley.
- Dahiya, Sandeep & Puri, Manju & Saunders, Anthony, 2001. "Bank Borrowers and Loan Sales: New Evidence on the Uniqueness of Bank Loans," Research Papers, Stanford University, Graduate School of Business 1746, Stanford University, Graduate School of Business.
- Flannery, Mark J, 1986. " Asymmetric Information and Risky Debt Maturity Choice," Journal of Finance, American Finance Association, American Finance Association, vol. 41(1), pages 19-37, March.
- Slovin, Myron B & Sushka, Marie E & Polonchek, John A, 1993. " The Value of Bank Durability: Borrowers as Bank Stakeholders," Journal of Finance, American Finance Association, American Finance Association, vol. 48(1), pages 247-66, March.
- Smith, Clifford Jr. & Warner, Jerold B., 1979. "On financial contracting : An analysis of bond covenants," Journal of Financial Economics, Elsevier, Elsevier, vol. 7(2), pages 117-161, June.
- Mark Carey & Greg Nini, 2004. "Is the corporate loan market globally integrated? a pricing puzzle," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 813, Board of Governors of the Federal Reserve System (U.S.).
- Mark Pyles & Donald Mullineax, 2008. "Constraints on Loan Sales and the Price of Liquidity," Journal of Financial Services Research, Springer, Springer, vol. 33(1), pages 21-36, February.
- Adam B. Ashcraft & João A. C. Santos, 2007. "Has the credit derivatives swap market lowered the cost of corporate debt?," Staff Reports, Federal Reserve Bank of New York 290, Federal Reserve Bank of New York.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio Lupi).
If references are entirely missing, you can add them using this form.