Why Larger Lenders Obtain Higher Returns: Evidence from Sovereign Syndicated Loans


  • We are grateful for the helpful comments of an anonymous referee of this journal and Patrick Bolton, Francesco Corielli, James Dow, Xavier Freixas, Evan Gatev, Frank Heinemann, Jan Pieter Krahnen, Alfred Lehar, Steven Ongena, Andrea Resti, and Andrea Sironi; seminar participants at Bocconi, Frankfurt, Leuven, Mannheim, Oxford (Said Business School), and Salerno; and participants at the annual meetings of the Canadian Economics Association, the European Finance Association, the French Finance Association (AFFI), the German Finance Association, the Northern Finance Association, the Spanish Economic Association, and the Southwestern Finance Association. We thank the Center for Financial Studies, Frankfurt (Hallak) and Utrecht University (Schure) for their kind hospitality, and the Center for Applied Research in Finance (CAREFIN) at Bocconi University for financial support. All errors are ours.


Lenders who make large funding commitments earn higher rates of return than those who make smaller commitments. We analyze a data set of sovereign syndicated loan contracts to document study and this phenomenon. We show that the “large lenders” in the lending syndicates earn a “return premium,” which is positively affected by the likelihood of future liquidity problems of the borrower. This finding suggests that the onus would be on the large lenders in particular to provide services, such as liquidity insurance and coordinating the workout. The return premium also increases in the fraction of banks among the larger syndicate members, suggesting that banks are special lenders in terms of addressing idiosyncratic liquidity problems.