Large customer-supplier links and syndicate loan structure
Large customer-supplier links and syndicate loan structure
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.
Diversification, Large customer-supplier link, Loan pricing, Loan structure, Syndicated loan
101844
Croci, Ettore
46484e30-52b4-4e65-a3a7-4ce3645112e9
Degl'innocenti, Marta
e33b2a74-a534-44a2-ab66-819b156564c3
Zhou, Si
4d888ef9-73bb-4fde-969e-5003c5c0b146
February 2021
Croci, Ettore
46484e30-52b4-4e65-a3a7-4ce3645112e9
Degl'innocenti, Marta
e33b2a74-a534-44a2-ab66-819b156564c3
Zhou, Si
4d888ef9-73bb-4fde-969e-5003c5c0b146
Croci, Ettore, Degl'innocenti, Marta and Zhou, Si
(2021)
Large customer-supplier links and syndicate loan structure.
Journal of Corporate Finance, 66, , [101844].
(doi:10.1016/j.jcorpfin.2020.101844).
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’
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Accepted/In Press date: 11 December 2020
e-pub ahead of print date: 17 December 2020
Published date: February 2021
Keywords:
Diversification, Large customer-supplier link, Loan pricing, Loan structure, Syndicated loan
Identifiers
Local EPrints ID: 446814
URI: http://eprints.soton.ac.uk/id/eprint/446814
ISSN: 0929-1199
PURE UUID: 5f01e0b6-f80f-4c8d-99e5-7f1af3652791
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Date deposited: 23 Feb 2021 17:32
Last modified: 27 Apr 2022 12:48
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Contributors
Author:
Ettore Croci
Author:
Marta Degl'innocenti
Author:
Si Zhou
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