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Common information asymmetry factors in syndicated loan structures

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  • Champagne, Claudia
  • Coggins, Frank

Abstract

This paper provides a comprehensive study of the syndicate structure and its relationship to information asymmetry and loan spread by using principal component analysis on a large set of 40 structure-related variables. A total of six structure components are identified and related to syndicate quality, syndicate members’ heterogeneity or share concentration, lead arranger’s characteristics, lead lender’s or syndicate’s location, lender–borrower relationships, and lead institution type. In multivariate settings, all six components are significant determinants of loan spread, either directly or indirectly through their impact on other components. Lead share retention, previous lender–borrower relationships and syndicate quality are shown to be bilaterally related to loan spread. Structure components differ regionally, which can provide an explanation for the European pricing discount observed in the literature. An Asian discount is observed and cannot be explained by structure differences.

Suggested Citation

  • Champagne, Claudia & Coggins, Frank, 2012. "Common information asymmetry factors in syndicated loan structures," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1437-1451.
  • Handle: RePEc:eee:jbfina:v:36:y:2012:i:5:p:1437-1451
    DOI: 10.1016/j.jbankfin.2011.12.009
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Champagne, Claudia, 2014. "The international syndicated loan market network: An “unholy trinity”?," Global Finance Journal, Elsevier, vol. 25(2), pages 148-168.
    2. Kleimeier, Stefanie & Chaudhry, Sajid M., 2015. "Cultural differences and the structure of loan syndicates," Finance Research Letters, Elsevier, vol. 15(C), pages 115-124.
    3. Thomas Conlon & John Cotter & Philip Molyneux, 2018. "Beyond Common Equity - The Influence of Secondary Capital on Bank Insolvency Risk," Working Papers 201806, Geary Institute, University College Dublin.

    More about this item

    Keywords

    Syndicated loan market; Principal component analysis; Syndicate structure; Information asymmetry; European pricing discount;

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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