Do Lead Banks Exploit Syndicate Participants? Evidence from Ex Post Risk


  • Kamphol Panyagometh,

    1. Kamphol Panyagometh is an Assistant Professor of Finance at the National Institute of Development Administration (NIDA) Business School, in Bangkok, Thailand.
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  • Gordon S. Roberts

    1. Gordon S. Roberts is the Canadian Imperial Bank of Commerce Professor of Financial Services at the Schulich School of Business, York University in Toronto, Ontario, Canada.
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  • The authors benefited from comments from an anonymous referee as well as from Melanie Cao, Debarshi Nandy, Manju Puri, Anthony Saunders, and Yisong Tian. Panyagometh gratefully acknowledges financial support from the National Research Program in Financial Services and Public Policy at the Schulich School of Business as well as the National Institute of Development Administration (NIDA). Roberts' contribution to this research was funded by the Social Sciences and Humanities Research Council of Canada. All errors are the responsibility of the authors.


Loan syndication involves a repeated game between lead banks and syndicate members. Lead banks do not use their private information to exploit syndicate participants but rather focus on accurately certifying loan quality. Using borrowers' financial ratios (shifts in Altman's Z scores) after origination to proxy for bank private information, we find that lead banks syndicate larger proportions of loans that subsequently do not experience lower Z scores. Performance pricing covenants under which borrowers commence to pay higher spreads if ratios (or credit ratings) deteriorate constitute a positive signal reducing agency costs and are associated with higher proportions of syndication.