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Banking market concentration and syndicated loan prices

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  • Biao Mi

    (University of Reading)

  • Liang Han

    (University of Reading)

Abstract

This paper investigates the ‘price–concentration’ relationship in pricing syndicated loans. By measuring bank concentration at a state level in US, we show supporting evidence to market power hypothesis that syndicated loan prices are positively associated with the concentration of both borrower’s and lead arranger’s markets but not the concentration of participant lenders’ markets. We also show that loan prices are more sensitively to lead arranger’s market concentration than to borrower’s and a borrower could reduce loan costs by borrowing from a less concentrated bank market. In sharp contrast, loan prices are negatively associated with bank concentration if a loan syndication is led by an investment bank or non-bank financial institution. Our findings are robust to a variety of bank concentration measures and model specification.

Suggested Citation

  • Biao Mi & Liang Han, 2020. "Banking market concentration and syndicated loan prices," Review of Quantitative Finance and Accounting, Springer, vol. 54(1), pages 1-28, January.
    • Handle: RePEc:kap:rqfnac:v:54:y:2020:i:1:d:10.1007_s11156-018-0781-y
    DOI: 10.1007/s11156-018-0781-y
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    More about this item

    Keywords

    Banking market; Concentration; Syndicated loan; Market power;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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