The value of repeat lending

Blaise Gadanecz, Alper Kara, Philip Molyneux

Research output: Working paper

Abstract

The unique structure of syndicated lending results in information asymmetries within the lending syndicate between banks of varying degrees of seniority. While previous studies have attempted to use indirect proxymeasures to capture the effects of such information asymmetries, in this paper we propose a more direct measure. This offers new insights into how junior and senior banks rely on their own and each other’sinformation sets in lending syndicates. In particular, we look at 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 5,842 syndicated loan transactions between 1993 and 2006, we find that when participant banks have information inferiority in the syndicate they require higher loan spreads tocompensate 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 informedlenders (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
PublisherBank of International Settlements
Number of pages29
Publication statusPublished - Jul 2011
Externally publishedYes

Publication series

NameBIS Working Papers
PublisherBank for International Settlements
No.350
ISSN (Print)1020-0959

Fingerprint

Lending
Syndicates
Asymmetry
Lending relationships
Borrowing
Loans
Seniority
Information asymmetry
Syndicated loans
Interaction
Asymmetry of information

Cite this

Gadanecz, B., Kara, A., & Molyneux, P. (2011). The value of repeat lending. (BIS Working Papers; No. 350). Bank of International Settlements.
Gadanecz, Blaise ; Kara, Alper ; Molyneux, Philip. / The value of repeat lending. Bank of International Settlements, 2011. (BIS Working Papers; 350).
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Gadanecz, B, Kara, A & Molyneux, P 2011 'The value of repeat lending' BIS Working Papers, no. 350, Bank of International Settlements.

The value of repeat lending. / Gadanecz, Blaise; Kara, Alper; Molyneux, Philip.

Bank of International Settlements, 2011. (BIS Working Papers; No. 350).

Research output: Working paper

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Gadanecz B, Kara A, Molyneux P. The value of repeat lending. Bank of International Settlements. 2011 Jul. (BIS Working Papers; 350).