The Size and Composition of Commercial Lending Syndicates

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Abstract
We examine the factors that influence the structure (size and composition)of a commercial lending syndicate. We find that syndicates are smaller and more concentrated, as reflected in the Hirschman Herfindahl index for the lending group, when there is less information available about the borrower, when credit risk is relatively high, and when a loan is secured. Syndicates are larger and more diffuse when the arranging bank is more reputable, when the arranger constrains the loan re-sale activity of group members, when the loan has a long term to maturity, and when the borrower holds large growth options. Our results are robust when we restrict the sample to borrowers with equity that trades and to borrowers with a credit rating. The findings for the proportional holdings of syndicate members likewise are robust when we control for the influence of syndicate size on composition. Arrangers create more concentrated syndicates when the expected size of the lending group increases.

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