Title

The cascade effect on lending conditions: evidence from the syndicated loan market

RIS ID

97738

Publication Details

Wu, W., Chang, H., Suardi, S. & Chang, Y. (2013). The cascade effect on lending conditions: evidence from the syndicated loan market. Journal of Business Finance and Accounting, 40 (9-10), 1247-1275.

Abstract

This paper investigates, both theoretically and empirically, how interactions among potential lenders may influence contract terms via informational cascade in the syndicated loan market. Our model shows that the ex-post observed interest rate is higher and the probability of syndication failure is lower when potential lenders can only observe the decisions of their predecessors versus when they can freely communicate with each other. Empirical tests confirm the model's predictions and the existence of a cascade effect on lending conditions. Using relational distance to proxy for the segmentation of communication, we find that relational distance is positively related to the loan spread and the requirements for collateral and guarantees, but negatively related to the probability of syndication failure.

Please refer to publisher version or contact your library.

Share

COinS
 

Link to publisher version (DOI)

http://dx.doi.org/10.1111/jbfa.12050