Three essays on bank loans

This thesis consists of three essays on the examination of various aspects of bank loans. Chapter 2 examines the impacts of lender structure on loan pricing using U.S. data. Chapter 3 expands the investigation to an international context, exploring how differences in host countries' culture, legal and financial systems impact foreign lender participation in global syndicated loans. Chapter 4 assesses the extent to which host countries' bank regulation and supervision practices impact the design of loan pricing.

In Chapter 2, we propose that fewer lead banks should represent "best practices", promoting efficient monitoring and ease of renegotiation and such syndicates should be associated with lower loan spreads. We conduct tests of this proposition drawing on data from DealScan, Compustat and Federal Reserve Call Reports for U.S. loans. We find that the number of lead lenders has a significant positive influence on loan yield spreads.

Chapter 3 uncovers relations between foreign lender participation and host countries' culture, legal and financial systems. We find foreign lender participation is generally lower when host countries have larger equity markets, weaker creditor rights, poor enforcement of contracts, and when the majority of the population is Catholic. In a contribution to the literature we include Hofstede's cultural proxies and find when host countries have high scores on Hofstede's Power Distance, Uncertainty Avoidance, and Individualism dimensions and low scores on the Masculinity dimension, foreign lender participation is lower. Our results suggest that cultural context is an important determinant in the level of foreign lender participation.

Chapter 4 investigates the impacts of host countries' bank regulation and supervision practices on loan pricing. We find that, in countries with high degrees of banking-commerce integration, domestic lenders tend to charge lower rents due to mutual equity relationships between the bank and the firm; foreign lenders tend to extract higher rents as a way of compensating for their greater risk exposure. Moreover, the benefit of lower loan costs received from domestic lenders vanishes in countries with high degrees of banking concentration. Additionally, foreign lenders provide more favorable loan pricing to the borrowers than domestic lenders in countries with higher banking concentration.