Large customer-supplier links and syndicate loan structure

Croci, Ettore, Degl'innocenti, Marta and Zhou, Si (2021) Large customer-supplier links and syndicate loan structure. Journal of Corporate Finance, 66, 101844, [101844]. (doi:10.1016/j.jcorpfin.2020.101844).

Record type: Article

Abstract

Relationships between large customers and suppliers expose lenders to additional risks. These risks may force lead agents to retain a larger share of syndicated loans, reducing loan-level diversification, and, in turn, increasing the required interest rate spread. Consistent with this view, we find that borrowers' dependence on a few larger customers or suppliers positively affects the cost of the loans indirectly through the loan structure. Instead, we do not observe a direct cost associated with large customer-supplier links, suggesting that lead agents do not increase the interest rate spread as compensation for the additional risks of dealing with borrowers with large customer-supplier links per se. Finally, we document an inverted U-shaped relationship between the length of the large customer-supplier link and the loan share held by the lead agent.

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Large customer-supplier links and syndicate loan structure’ - Accepted Manuscript

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Accepted/In Press date: 11 December 2020

e-pub ahead of print date: 17 December 2020

Published date: February 2021

Additional Information: Funding Information: We thank Douglas Cumming (the editor) and two anonymous referees for valuable comments and suggestions. We also thank Anna Chernobai, Franco Fiordelisi, Angela Gallo, Antonios Kalyvas, Paula Margaretic, Bill Megginson, Panagiotis Politsidis, Ornella Ricci, Stefano Rossi (the discussant) and Klaus Schaeck. Comments from seminar participants at the University of Southampton, Shanghai University, Zhejiang University, the 2018 FINEST Autumn Workshop, the 2019 EFMA annual conference, the 2019 EFIC conference, the 2019 FMA annual conference and the 2019 China Finance Annual Conference are also appreciated. We are solely responsible for all existing errors and omissions. Publisher Copyright: © 2020 Elsevier B.V.

Keywords: Diversification, Large customer-supplier link, Loan pricing, Loan structure, Syndicated loan