A Comparison of Syndicated Loan Pricing at Investment and Commercial Banks

Authors

  • Maretno Harjoto,

    1. Maretno Harjoto is an assistant professor of finance at San José State University in San José, CA. Donald J. Mullineaux is the DuPont Chair in Banking and Financial Services at the University of Kentucky in Lexington, KY. Ha-Chin Yi is an assistant professor of finance at Texas State University in San Marcos, TX
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  • Donald J. Mullineaux,

    1. Maretno Harjoto is an assistant professor of finance at San José State University in San José, CA. Donald J. Mullineaux is the DuPont Chair in Banking and Financial Services at the University of Kentucky in Lexington, KY. Ha-Chin Yi is an assistant professor of finance at Texas State University in San Marcos, TX
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  • Ha-Chin Yi

    1. Maretno Harjoto is an assistant professor of finance at San José State University in San José, CA. Donald J. Mullineaux is the DuPont Chair in Banking and Financial Services at the University of Kentucky in Lexington, KY. Ha-Chin Yi is an assistant professor of finance at Texas State University in San Marcos, TX
    Search for more papers by this author

Abstract

We reject the hypothesis that investment and commercial banks have identical loan-pricing policies. We find that compared to commercial banks, investment banks lend to less profitable, more lever aged firms, price riskier classes of term loans more generously, and offer relatively longer-term credits, usually with term, not commitment contracts. Investment banks typically establish higher credit spreads, although the premium declines when a commercial bank joins as syndicate co-arranger. Investment banks also price riskier classes of term loans more generously to borrowers than do commercial banks. Commercial-bank funding advantages do not appear to be a source of the pricing differences.

Ancillary