Three essays on the syndicated loan market

Abstract

The three essays in this thesis study several aspects of the syndicated loan market. In the first essay, we investigate the design of syndicated loan contracts by non-bank financial institutions compared with those by banks. Using a propensity-score matching technique, we find evidence that non-banks design “arm’s length” loan contracts, that they rely less on the monitoring through financial covenants while they demand higher loan prices and use various non-pricing contract terms to minimize the risk-shifting of borrowers and ensure the repayment of loans.
In the second essay, we investigate the implications of non-bank lending for the borrowers’ post-loan real outcomes. Using the same matched sample as before, we find borrowers of non-banks have lower post-loan operating performance and investment compared with observably similar borrowers of banks. The leveraged lending guidance, which resulted in the migration of risky borrowers from banks to non-banks, led to lower investment and lower performance for the leveraged borrowers. Our results are consistent with the views that non-banks engage less in the monitoring of borrowers and exploit their strong bargaining power to extract rents and impose restrictions
In the third essay, we investigate the design of syndicated loan contracts for private and public firms under uncertainty, using the Brexit referendum as an exogenous uncertainty shock. We find that, following the uncertainty shock, the cost of loans increases mainly for the private firms, not for the public firms. Firm level foreign exposure like foreign sales and foreign subsidiaries can mitigate the effect of uncertainty on the cost of borrowing for both public and private firms. For the public firms, whose accounting information is likely to be more contractible, their loan contracts include more performance-based financial covenants. Overall, our findings provide novel evidence on how borrowers’ public status and foreign exposure shape loan contracts under uncertainty.

Date of Award	27 Sept 2022
Original language	English
Awarding Institution	University of Bristol
Supervisor	Neslihan Ozkan (Supervisor) & Sonny Biswas (Supervisor)