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Within‐syndicate conflicts, loan covenants, and syndicate formation

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  • Nishant Dass
  • Vikram Nanda
  • Qinghai Wang

Abstract

We study how conflicts within a lending syndicate affect loan contract and syndicate formation. We argue that loan provisions serve an important dual function: In addition to moderating borrower–lender conflicts, they reduce within‐syndicate conflicts. We show that greater potential for within‐syndicate conflicts is associated with more and stricter covenants. Loans are less restrictive when the interests of participants and the lead arrangers are better aligned, for example, when participant–banks have stronger relationships with the lead arranger or hold borrower's equity (indirectly). Overall, our results show that covenant choice, syndicate formation, and lead arranger's loan allocation all play an important role in reducing within‐syndicate conflicts.

Suggested Citation

  • Nishant Dass & Vikram Nanda & Qinghai Wang, 2020. "Within‐syndicate conflicts, loan covenants, and syndicate formation," Financial Management, Financial Management Association International, vol. 49(2), pages 547-583, June.
    • Handle: RePEc:bla:finmgt:v:49:y:2020:i:2:p:547-583
    DOI: 10.1111/fima.12270
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