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Liquidity Risk and Syndicate Structure

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  • Evan Gatev
  • Philip Strahan

Abstract

We offer a new explanation of loan syndicate structure based on banks' comparative advantage in managing systematic liquidity risk. When a syndicated loan to a rated borrower has systematic liquidity risk, the fraction of passive participant lenders that are banks is about 8% higher than for loans without liquidity risk. In contrast, liquidity risk does not explain the share of banks as lead lenders. Using a new measure of ex-ante liquidity risk exposure, we find further evidence that syndicate participants specialize in liquidity-risk management while lead banks manage lending relationships. Links from transactions deposits to liquidity exposure are about 50% larger at participant banks than at lead arrangers.

Suggested Citation

  • Evan Gatev & Philip Strahan, 2008. "Liquidity Risk and Syndicate Structure," NBER Working Papers 13802, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:13802
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    References listed on IDEAS

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    Cited by:

    1. Godlewski, Christophe, 2008. "Duration of loan arrangement and syndicate organization," MPRA Paper 10953, University Library of Munich, Germany.
    2. Jian Cai, 2009. "Competition or collaboration? The reciprocity effect in loan syndication," Working Papers (Old Series) 0909, Federal Reserve Bank of Cleveland.
    3. Issam Hallak & Paul Schure, 2011. "Why Larger Lenders Obtain Higher Returns: Evidence from Sovereign Syndicated Loans," Financial Management, Financial Management Association International, vol. 40(2), pages 427-453, June.
    4. Duan Ji & Yuyu Liu & Lin Zhang & Jingjing An & Wenyan Sun, 2020. "Green Social Responsibility and Company Financing Cost-Based on Empirical Studies of Listed Companies in China," Sustainability, MDPI, vol. 12(15), pages 1-16, August.
    5. Ivashina, Victoria & Sun, Zheng, 2011. "Institutional stock trading on loan market information," Journal of Financial Economics, Elsevier, vol. 100(2), pages 284-303, May.

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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • 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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