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Foreign branch and bank lending decisions: Evidence from high-risk borrowers

Author

Listed:
  • Wu, Xufeng
  • Huang, Ying-Chen
  • Lin, Chih-Yung

Abstract

This paper investigates whether foreign branches of the top 100 multinational banks transmit superior soft information to their parent banks for cross-border lending decisions. We show that foreign banks with more local branches serve as lead arrangers in syndication loans and earn higher upfront fees. Also, these foreign banks charge higher spreads, offer smaller loans, and require more covenants and collateral. The reason is that these foreign banks often lend to high-risk borrowers because of their superior soft information. As a result, these high-risk borrowers have improved credit quality and profitability after obtaining these loans. Based on the financial crisis of 2007–2009, we adopt a difference-in-differences (DiD) framework to do a robustness check. Consistent with our hypothesis, we find that foreign banks with local branches are more likely to charge higher spreads to high-risk borrowers, especially during the crisis.

Suggested Citation

  • Wu, Xufeng & Huang, Ying-Chen & Lin, Chih-Yung, 2025. "Foreign branch and bank lending decisions: Evidence from high-risk borrowers," Pacific-Basin Finance Journal, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:pacfin:v:93:y:2025:i:c:s0927538x25002008
    DOI: 10.1016/j.pacfin.2025.102863
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    References listed on IDEAS

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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