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Large customer-supplier links and syndicate loan structure

Author

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  • Croci, Ettore
  • Degl'Innocenti, Marta
  • Zhou, Si

Abstract

Relationships between large customers and suppliers expose lenders to additional risks. These risks may force lead agents to retain a larger share of syndicated loans, reducing loan-level diversification, and, in turn, increasing the required interest rate spread. Consistent with this view, we find that borrowers' dependence on a few larger customers or suppliers positively affects the cost of the loans indirectly through the loan structure. Instead, we do not observe a direct cost associated with large customer-supplier links, suggesting that lead agents do not increase the interest rate spread as compensation for the additional risks of dealing with borrowers with large customer-supplier links per se. Finally, we document an inverted U-shaped relationship between the length of the large customer-supplier link and the loan share held by the lead agent.

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  • Croci, Ettore & Degl'Innocenti, Marta & Zhou, Si, 2021. "Large customer-supplier links and syndicate loan structure," Journal of Corporate Finance, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:corfin:v:66:y:2021:i:c:s0929119920302881
    DOI: 10.1016/j.jcorpfin.2020.101844
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    Cited by:

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    2. Bao, Yangming, 2022. "Peer information in loan pricing," Journal of Corporate Finance, Elsevier, vol. 76(C).
    3. Bermpei, Theodora & Degl’Innocenti, Marta & Kalyvas, Antonios Nikolaos & Zhou, Si, 2023. "Lender individualism and monitoring: Evidence from syndicated loans," Journal of Financial Stability, Elsevier, vol. 66(C).

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    More about this item

    Keywords

    Diversification; Large customer-supplier link; Loan structure; Loan pricing; Syndicated loan;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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