A Spark from the Public Sector: Co-Lending by Government-Owned and Private-Sector Lenders
61 Pages Posted: 26 Jul 2016
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Public-Private Co-Lending: Evidence from Syndicated Corporate Loans
Date Written: July 25, 2016
Abstract
Co-lending by private-sector and government-owned lenders accounts for nearly one-tenth of all syndicated-loan funding to corporate borrowers over the three decades spanning 1980 to 2010. I find evidence that private-sector institutions co-lend with government-owned lenders to benefit from better legal protection and implicit debt guarantees. This leads to loans with lower spreads, longer maturities, larger syndicates, less collateral, and a greater participation of foreign lenders, particularly for borrowers headquartered in countries with weak property rights. Yet, firms that receive loans from a mixed syndicate comprised of both private and government-owned lenders show a decline in profitability and valuation in subsequent years, which suggests that government-owned lenders fail to efficiently allocate funding.
Keywords: Government-owned banks, Syndicated loans
JEL Classification: G15, G32, G38
Suggested Citation: Suggested Citation