The pricing and structure of syndicated loans : three empirical studies
This thesis explores the micro-structure of the market for syndicated loans from the demand and supply side and aims to provide a detailed micro-economic analysis. The focus is on the determinants of loan pricing to both developing and industrialised countries. Particular attention is paid to the characteristics of both lenders and borrowers. The thesis comprises four papers. Paper 1 defines key concepts and provides a historical outlook on the international market for syndicated loans since the late 1970s. Paper 2 analyses in an extensive risk-return framework the determinants of the pricing of syndicated credits granted to developing country borrowers between 1993 and 2001. It concludes that risk is properly reflected in loan pricing, although the effect of purely micro-economic price determinants is in several instances weaker when variables reflecting macro-economic conditions in borrowers' countries are also introduced into the model. Analysis of market structure allows us to make inferences about the effects of bank market power and perceived risk concentration in syndicated lending to developing country borrowers. Paper 3 extends the second one in a first attempt to our knowledge to analyse the determinants of the pricing of developing and industrialised country loans and bonds taken together in the 1990s. On average, we find that developing country bonds have been riskier than developing country loans and industrialised country loans riskier than industrialised country bonds. We analyse how spill-over effects may have taken place from one market segment to the other in the wake of the Asian financial crisis. We also compare market access and structure on the respective market segments. We find that banks and investors may have exercised their market power to the greatest extent or that the penalising effect of higher perceived risk concentration may have been most pronounced in the case of bank loans being made to developing country borrowers. Paper 4 is the first of its kind to investigate the effects of bank characteristics on the structure and pricing of syndicated loans at an international level, using a unique dataset. We show that the pricing of loans is likely to be lower as banks participating in those loans become less liquidity-constrained or better capitalised, or enjoy a regulatory advantage. The relationship between bank characteristics and loan pricing generally appears to be stronger in the case of senior banks than of junior banks. This confirms the stronger pricing power of senior banks when arranging loans, while junior participants tend to act more as price takers. Contrary to the existing literature we find evidence of senior banks offloading larger shares of riskier loans in a potentially opportunistic way to outsider junior banks with little knowledge of the borrower. They also tend to hold higher portions of loans they arrange when they are better capitalised. In addition, as information about the borrower becomes less transparent, junior banks rely more on the reputation of the senior bank, to determine their level of commitment, than when borrower information is widely available to the public.