Why Borrowers Pay Premiums to Larger Lenders: Empirical Evidence From Sovereign Syndicated Loans

Topics:
Investment and Capital Markets
Tags:
Center For Financial Studies,
Finance,
Investment,
Lender
Source:
Center for Financial Studies

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Overview: This paper explores empirically the motivation for such a price design on a sample of sovereign syndicated loans in the period 1990-1997. All other terms being equal (e.g. seniority), syndicated loan contracts provide larger lending compensations (in percentage points) to institutions funding larger amounts. There are strong evidence that a larger premium is associated with higher renegotiation probability and information asymmetries. It hardly has any impact on the number of lenders though. This is consistent with the hypothesis that larger lenders act as main lenders, namely help reduce information asymmetries and provide services in situations of liquidity shortage.

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Format: PDF | Size: 126KB | Date: Oct 2003 | Pages: 34

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