The Price and Quality of Arranging Services in Syndicated Lending
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Journal Title
Journal ISSN
Volume Title
School of Business |
Master's thesis
Authors
Date
2018
Department
Major/Subject
Mcode
Degree programme
Finance
Language
en
Pages
49 + 4
Series
Abstract
PURPOSE OF THE STUDY The objective of this thesis is to find out the implications of bank’s reputation on syndicated loan arranging services. The criteria on how the companies select the lead arranger of the syndicate is investigated. Moreover, the thesis models the quality and pricing of arrangement service separately for the reputable and less-reputable banks, and seeks an answer to the question whether higher reputation leads in better quality and higher price of the service. DATA AND METHODOLOGY The study employs a dataset consisting of 4221 separate loan tranches without geographical limitations. The loan data is collected from SDC Platinum and complemented with borrower accounting data obtained from Thomson Reuters. To test the hypotheses, I employ a two-stage regression with an endogenous switch to control for the endogenous effects in lead arranger selection. RESULTS The empirical results show that borrower-arranger matching is non-random and that the reputable and less-reputable bank groups are specialized for different clienteles. The reputable banks tend to arrange larger, more complex and more risky loan packages while providing superior quality among those loans. However, I do not find significant evidence of quality-premium in form of upfront fees charged. The less-reputable banks serve less-risky, though more-opaque, local companies with smaller financing needs and provide superior quality for those clients over the reputable banks.Description
Thesis advisor
Suominen, MattiKeywords
syndicated loans, arranging fees, intermediary reputation, banking