Universal banks and corporate control

evidence from the global syndicated loan market

Miguel A. Ferreira, Pedro Matos

Research output: Contribution to journalArticle

30 Citations (Scopus)

Abstract

We investigate the effects of bank control over borrower firms whether by representation on boards of directors or by the holding of shares through bank asset management divisions. Using a large sample of syndicated loans, we find that banks are more likely to act as lead arrangers in loans when they exert some control over the borrower firm. Bankfirm governance links are associated with higher loan spreads during the 2003-2006 credit boom but lower spreads during the 2007-2008 financial crisis. Additionally, these links mitigate credit rationing effects during the crisis. The results are robust to several methods to correct for the endogeneity of the bankfirm governance link. Our evidence, consistent with intertemporal smoothing of loan rates, suggests that there are costs and benefits from banks' involvement in firm governance.

Original languageEnglish
Pages (from-to)2703-2744
Number of pages42
JournalReview Of Financial Studies
Volume25
Issue number9
DOIs
Publication statusPublished - 1 Sep 2012

Fingerprint

Syndicated loans
Corporate control
Universal banks
Governance
Loans
Credit rationing
Board of directors
Loan rates
Financial crisis
Costs and benefits
Smoothing
Endogeneity
Credit booms
Asset management

Cite this

@article{3d16623cde5b42629891ff7a471ca268,
title = "Universal banks and corporate control: evidence from the global syndicated loan market",
abstract = "We investigate the effects of bank control over borrower firms whether by representation on boards of directors or by the holding of shares through bank asset management divisions. Using a large sample of syndicated loans, we find that banks are more likely to act as lead arrangers in loans when they exert some control over the borrower firm. Bankfirm governance links are associated with higher loan spreads during the 2003-2006 credit boom but lower spreads during the 2007-2008 financial crisis. Additionally, these links mitigate credit rationing effects during the crisis. The results are robust to several methods to correct for the endogeneity of the bankfirm governance link. Our evidence, consistent with intertemporal smoothing of loan rates, suggests that there are costs and benefits from banks' involvement in firm governance.",
author = "Ferreira, {Miguel A.} and Pedro Matos",
year = "2012",
month = "9",
day = "1",
doi = "10.1093/rfs/hhs076",
language = "English",
volume = "25",
pages = "2703--2744",
journal = "Review Of Financial Studies",
issn = "0893-9454",
publisher = "Oxford University Press",
number = "9",

}

Universal banks and corporate control : evidence from the global syndicated loan market. / Ferreira, Miguel A.; Matos, Pedro.

In: Review Of Financial Studies, Vol. 25, No. 9, 01.09.2012, p. 2703-2744.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Universal banks and corporate control

T2 - evidence from the global syndicated loan market

AU - Ferreira, Miguel A.

AU - Matos, Pedro

PY - 2012/9/1

Y1 - 2012/9/1

N2 - We investigate the effects of bank control over borrower firms whether by representation on boards of directors or by the holding of shares through bank asset management divisions. Using a large sample of syndicated loans, we find that banks are more likely to act as lead arrangers in loans when they exert some control over the borrower firm. Bankfirm governance links are associated with higher loan spreads during the 2003-2006 credit boom but lower spreads during the 2007-2008 financial crisis. Additionally, these links mitigate credit rationing effects during the crisis. The results are robust to several methods to correct for the endogeneity of the bankfirm governance link. Our evidence, consistent with intertemporal smoothing of loan rates, suggests that there are costs and benefits from banks' involvement in firm governance.

AB - We investigate the effects of bank control over borrower firms whether by representation on boards of directors or by the holding of shares through bank asset management divisions. Using a large sample of syndicated loans, we find that banks are more likely to act as lead arrangers in loans when they exert some control over the borrower firm. Bankfirm governance links are associated with higher loan spreads during the 2003-2006 credit boom but lower spreads during the 2007-2008 financial crisis. Additionally, these links mitigate credit rationing effects during the crisis. The results are robust to several methods to correct for the endogeneity of the bankfirm governance link. Our evidence, consistent with intertemporal smoothing of loan rates, suggests that there are costs and benefits from banks' involvement in firm governance.

UR - http://www.scopus.com/inward/record.url?scp=84865208358&partnerID=8YFLogxK

U2 - 10.1093/rfs/hhs076

DO - 10.1093/rfs/hhs076

M3 - Article

VL - 25

SP - 2703

EP - 2744

JO - Review Of Financial Studies

JF - Review Of Financial Studies

SN - 0893-9454

IS - 9

ER -