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Relationship Banking and Loan Syndicate Structure: The Role of Private Equity Sponsors

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  • Rongbing Huang
  • Donghang Zhang
  • Yijia (Eddie) Zhao

Abstract

Using a sample of syndicated loans to private equity (PE)‐backed initial public offering companies, we examine how a third‐party bank relationship influences the syndicate structure of a loan. We find that a stronger relationship between the lead bank and the borrower's PE firm enables the lead bank to retain a smaller share of the loan and form a larger and less concentrated syndicate, especially when the borrower is less transparent. A stronger PE‐bank relationship also attracts greater foreign bank participation. Our findings suggest that the lead bank's relationship with a large equity holder of the borrower facilitates information production in lending.

Suggested Citation

  • Rongbing Huang & Donghang Zhang & Yijia (Eddie) Zhao, 2018. "Relationship Banking and Loan Syndicate Structure: The Role of Private Equity Sponsors," The Financial Review, Eastern Finance Association, vol. 53(3), pages 461-498, August.
    • Handle: RePEc:bla:finrev:v:53:y:2018:i:3:p:461-498
    DOI: 10.1111/fire.12146
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