Development banks and the syndicate structure: Evidence from a world sample

MartaDegl’InnocentiaMarcoFrigeriobSiZhouc

• a

• Department of Economics, Management and Quantitative Methods, Università Degli Studi di Milano, Via Conservatorio 7, 20122 Milan, Italy

• b

• Department of Political and International Sciences, Università di Siena, Via P.A. Mattioli 10, 53100 Siena, Italy

• c

• School of Economics, Shanghai University, No. 99, Shangda Road, Shanghai, 200444, PR China

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Highlights

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• Lead banks retain lower loan shares in syndicates with development banks (DBs).

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• DBs affect the syndicate structure more during financial turmoil.

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• DBs affect the syndicate more for green and financially constrained borrowers.

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• No covenant violations and increased borrowers’ risk for mixed syndicates.

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Abstract

Do development banks influence syndicate structure? Using a global dataset across 48 countries of 11,949 syndicated loans from 2001 to 2016, we show that lead banks decrease their loan shares and form less concentrated structures in mixed syndicates that include both development banks and private-sector banks as participant lenders. In line with the social view on the role of development banks, we find that such an effect is stronger during periods of financial instability, particularly for the green industry and in the case of borrowers that are financially constrained. Conversely, we do not find any evidence that mixed syndicates exhibit a different syndicate structure for political distortions. Lastly, we find that mixed syndicates are not associated with higher covenant violations and an increasing of the borrowers’ risk profile after the loan origination. Our results are robust when accounting for, among others, relationship lending, asymmetric information within the syndicate, lenders’ lending expertise, borrowers’ opacity, types of loan, and ranking hierarchy in the syndicate.

Keywords

Syndicated loan market;

Syndicate structure;

Development banks;

Loan-level data

https://doi.org/10.1016/j.jempfin.2022.01.002