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Exploring risks in syndicated loan networks: Evidence from real estate investment trusts

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  • Kanno, Masayasu

Abstract

This study explores credit and systemic risks in the interconnected market for syndicated loans to Japan's real estate investment trusts (J-REITs). Although earlier studies have investigated various aspects of the syndicated loan market, few have considered the financial network and risk resilience perspectives. To bridge this gap, I conduct network analysis using credit exposures or Euclidean distance between loans and perform a macrostress test by extending Furfine's algorithm. The analysis results indicate that Japanese major banks, large regional banks, and J-REITs play a key role in terms of degree centrality. In addition, the test results show that no J-REIT's default causes default contagion of the lending institutions based on syndicated loans outstanding at the end of 2021. Overall, this study provides effective methodologies to evaluate the interconnectedness between loans as well as risk contagion from borrowers to lenders in a two-mode network for syndicated loans.

Suggested Citation

  • Kanno, Masayasu, 2022. "Exploring risks in syndicated loan networks: Evidence from real estate investment trusts," Economic Modelling, Elsevier, vol. 115(C).
    • Handle: RePEc:eee:ecmode:v:115:y:2022:i:c:s0264999322001997
    DOI: 10.1016/j.econmod.2022.105953
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    2. Liu, Yiting & Baals, Lennart John & Osterrieder, Jörg & Hadji-Misheva, Branka, 2024. "Network centrality and credit risk: A comprehensive analysis of peer-to-peer lending dynamics," Finance Research Letters, Elsevier, vol. 63(C).

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    More about this item

    Keywords

    Syndicated loan; REIT; Interconnectedness; Credit risk; Systemic risk; Stress test;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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