Asymmetric Information among Lending Syndicate Members and the Value of Repeat Lending

Blaise Gadanecz, Alper Kara, Philip Molyneux

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

We examine the effect of information asymmetries among syndicate members on loan prices. To this end we focus on the previous number of borrowing/lending relationships between individual borrowers and lenders and the duration of these interactions. Using this new, direct and explicit measure on a sample of 5867 syndicated loan transactions between 1993 and 2006, we find that when participant banks have information inferiority in the syndicate, they require higher loan spreads to compensate for this asymmetry. This is amplified when the borrowers are more opaque. We thus show how junior participant banks with repeat relationships with the same borrower graduate from uniformed to informed lenders (the spread goes down as asymmetry diminishes) and how they rely both on the arranger's reputation and their own repeat experience with the borrower.
Original languageEnglish
Pages (from-to)913-935
Number of pages23
JournalJournal of International Financial Markets, Institutions and Money
Volume22
Issue number4
Early online date9 May 2012
DOIs
Publication statusPublished - Oct 2012
Externally publishedYes

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