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RWP 10-12Lender Exposure and Effort in the Syndicated Loan Market

By  and Nada Mora and Nada Mora

Abstract

This paper tests for agency problems between the lead arranger and syndicate participants in the syndicated loan market. One problem comes from adverse selection, whereby the lead arranger has a private informational advantage over participants. A second problem comes from moral hazard, whereby the lead arranger puts less effort in monitoring when it retains a smaller loan portion. Applying an instrumental variables strategy, I find that borrowers ’ performance is influenced by the lead’s share. Dynamic tests extract active contributions made by the lead, supporting a monitoring interpretation. Loan covenants serve as a mechanism to induce the lead arranger to monitor

Topics: syndicated loans, asymmetric information, monitoring, covenants JEL Classification, D82, G21, G32
Year: 2010
OAI identifier: oai:CiteSeerX.psu:10.1.1.192.5777
Provided by: CiteSeerX
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