Abstract
We document a novel trend in syndicated lending where some participants voluntarily waive their rights to borrowers' private information. We posit that “public-side” lending emerged to facilitate broad lender participation in the syndicated loan market by mitigating concerns about the leakage of borrowers' private information into public securities markets. In line with this proposition, we find that public-side lending facilitates the loan market participation of lenders for which maintaining robust information barriers is particularly costly. Furthermore, while public-side lending increases within-syndicate information asymmetry, our findings indicate that it does not materially increase interest spreads and is associated with lower coordination costs among syndicate participants. Collectively, we document how debt contracting practices evolved to address frictions associated with the protection of borrowers’ private information and the related changes in loan contracting equilibria.
| Original language | English (US) |
|---|---|
| Article number | 101586 |
| Journal | Journal of Accounting and Economics |
| Volume | 76 |
| Issue number | 1 |
| DOIs | |
| State | Published - Aug 2023 |
Funding
☆ We appreciate helpful comments and suggestions from Eric Allen, John Core, Emmanuel De George, Ed deHaan (editor), Jung Koo Kang, Leila Peyravan, an anonymous reviewer, and seminar participants at Bocconi University, HEC (Paris), HKU Business School, Indiana University, INSEAD, London Business School, London School of Economics, Stanford University, University of California Fullerton, University of California Riverside, University of Notre Dame, and University of Southern California. We thank Bridget Marsh from the Loan Syndications and Trading Association and Stan Lim from Sabharwal, Globus & Lim LLP for discussions on the institutional details of public-side lenders in private lending. We also thank Terrence Blackburne for the SEC investigations and enforcement resources data and Greg Nini for the covenant violation data. We gratefully acknowledge financial support from INSEAD, Mendoza College of Business, Miami Herbert Business School, Sloan School of Management, and Marshall School of Business. We appreciate helpful comments and suggestions from Eric Allen, John Core, Emmanuel De George, Ed deHaan (editor), Jung Koo Kang, Leila Peyravan, an anonymous reviewer, and seminar participants at Bocconi University, HEC (Paris), HKU Business School, Indiana University, INSEAD, London Business School, London School of Economics, Stanford University, University of California Fullerton, University of California Riverside, University of Notre Dame, and University of Southern California. We thank Bridget Marsh from the Loan Syndications and Trading Association and Stan Lim from Sabharwal, Globus & Lim LLP for discussions on the institutional details of public-side lenders in private lending. We also thank Terrence Blackburne for the SEC investigations and enforcement resources data and Greg Nini for the covenant violation data. We gratefully acknowledge financial support from INSEAD, Mendoza College of Business, Miami Herbert Business School, Sloan School of Management, and Marshall School of Business.
Keywords
- Information asymmetry
- Information barriers
- Institutional investors
- Private information
- Public-side lenders
- Syndicated lending
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics