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Regulatory arbitrage and cross-border syndicated loans

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  • Demirguc-Kunt, Asli
  • Horvath, Balint L.
  • Huizinga, Harry

    (Tilburg University, School of Economics and Management)

Abstract

This paper investigates how international regulatory and institutional differences affect lending in the cross-border syndicated loan market. Lending provided through a foreign subsidiary is subject to subsidiary-country regulation and institutional arrangements. Multinational banks'choices between loan origination through the parent bank or through a foreign subsidiary provide information about these banks'preferences to operate in countries with varying regulations and institutions. The results indicate that international banks have a tendency to switch loan origination toward countries with less stringent bank regulation and supervision consistent with regulatory arbitrage, but that they prefer to originate loans in countries with higher-quality institutions related to financial market monitoring, creditor rights, and the speed of contract enforcement.
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Suggested Citation

  • Demirguc-Kunt, Asli & Horvath, Balint L. & Huizinga, Harry, 2019. "Regulatory arbitrage and cross-border syndicated loans," Other publications TiSEM 3e62fc2c-fa54-4699-ba52-4, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis:3e62fc2c-fa54-4699-ba52-4b9072521d44
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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