Renegotiation in Corporate Finance : Evidence from Syndicated Loans

Content Provider	Semantic Scholar
Author	Sufi, Amir
Copyright Year	2004
Abstract	Syndicated lending is an increasingly important source of corporate finance, with over $1 trillion in new syndicated loans signed annually. This paper empirically explores the syndicated loan market with an emphasis on how information asymmetry and renegotiation considerations influence syndicate structure and the choice of participant lenders. There are two principal findings. First, when the borrower requires more intense investigation and monitoring effort by a financial institution, the lead arranger retains a larger portion of the loan, forms a more concentrated syndicate, and chooses participants that are closer to the borrower (both geographically and in terms of previous relationships). The evidence is consistent with moral hazard in a setting of information asymmetry. The lead arranger attempts to guarantee due diligence effort by increasing its risk exposure, and the lead arranger chooses lenders that minimize information asymmetry. Second, when the borrower is more likely to need to renegotiate the loan agreement, lead arrangers add participants with very small portions of the loan to the syndicate. Given that unanimity of lenders is needed to renegotiate major terms of the loan, adding participants with small portions of the loan reduces the renegotiation surplus expected by the borrower. The evidence suggests that lenders form syndicates to reduce inefficient behavior and strategic default by borrowers. * I am especially grateful to James Poterba, Antoinette Schoar, and Philip Strahan for their continuous support and help with this project. I also thank Dan Bergstresser, Mark Carey, Benjamin Esty, Robert Gibbons, Michael Greenstone, Bengt Holmstrom, Dirk Jenter, Asim Khwaja, Randall Kroszner, David Matsa, Donald Mullineaux, Stewart Myers, Joshua Rauh, David Scharfstein, Edward Sellers, Lucy White, Peter Wysocki. This paper benefited greatly from seminar participants at MIT (Sloan), NYU (Stern), Chicago GSB, Columbia GSB, Northwestern (Kellogg), Harvard Business School and Yale SOM.
File Format	PDF HTM / HTML
Alternate Webpage(s)	http://web.mit.edu/finlunch/Spring04/sufi_sl.pdf
Alternate Webpage(s)	http://finance.wharton.upenn.edu/department/Seminar/2005Spring/MicroSpring05/sufi2-micro020305.pdf
Language	English
Access Restriction	Open
Content Type	Text
Resource Type	Article