A Spark from the Public Sector: Co-Lending by Government-Owned and Private-Sector Lenders

61 Pages Posted: 26 Jul 2016

See all articles by Veljko Fotak

Veljko Fotak

School of Management, University at Buffalo (SUNY); Sovereign Investment Lab, Baffi Carefin, Bocconi University

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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

Fotak, Veljko, A Spark from the Public Sector: Co-Lending by Government-Owned and Private-Sector Lenders (July 25, 2016). BAFFI CAREFIN Centre Research Paper No. 2016-24, Available at SSRN: https://ssrn.com/abstract=2814480 or http://dx.doi.org/10.2139/ssrn.2814480

Veljko Fotak (Contact Author)

School of Management, University at Buffalo (SUNY) ( email )

School of Management, University at Buffalo
236 Jacobs Management Center
Buffalo, NY 14260
United States
+1 716-645-1541 (Phone)

Sovereign Investment Lab, Baffi Carefin, Bocconi University ( email )

Via Roentgen 1
Milan
Italy

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