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The effect of banks’ financial reporting on syndicated-loan structures

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  • Beatty, Anne
  • Liao, Scott
  • Zhang, Haiwen (Helen)

Abstract

We explore how an accounting measure of information asymmetry between lead and participating lenders influences syndication structures by examining whether lead lenders’ commercial and industrial (C&I) loan-loss provision validity affects the fraction of loans they retain. We first conduct multiple tests showing that C&I provision validity reflects banks’ underlying screening and monitoring effectiveness. We then find lead lenders’ loan share decreases with C&I provision validity, but not with non-C&I provision validity. Consistent with an information effect, we further find this association is attenuated by (i) alternative information sources about the borrowers and (ii) previous lead/participant relationships and participant/borrower relationships.

Suggested Citation

  • Beatty, Anne & Liao, Scott & Zhang, Haiwen (Helen), 2019. "The effect of banks’ financial reporting on syndicated-loan structures," Journal of Accounting and Economics, Elsevier, vol. 67(2), pages 496-520.
    • Handle: RePEc:eee:jaecon:v:67:y:2019:i:2:p:496-520
    DOI: 10.1016/j.jacceco.2019.01.002
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