by Blaise Gadanecza, Kostas Tsatsaronisa, and Yener Altunbaşb
We analyze the syndicated loan market activity of banks with high support ratings. We find evidence that they underprice risk. Controlling for other characteristics, loans arranged by supported banks have, on average, lower spreads. In addition, these banks retain loans that are, on average, priced below market. At the same time, we do not find evidence suggesting that supported banks play any special role through strategic loan participation. Compared with other banks, their loan portfolios are less specialized, are more closely aligned with prevailing market trends, and exhibit lower persistence in their sectoral allocations.
JEL Codes: G15, G21.
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a Bank for International Settlements
b Bangor Business School, University of Wales