The Financial Intermediation Premium

Abstract

Using syndicated loan data, I document a premium for the exposure of nonfinancial firms to risks of financial intermediation. Firms that borrow from high-leverage financial intermediaries have on average 4% higher returns than firms with low-leverage lenders. This premium cannot be attributed to differences in firm characteristics. Instead, it stems from the underdiversified lender syndicate structure and elevated firm's refinancing intensity, materializing through inability to favorably renegotiate lending terms and obtain additional financing. Exploiting the dispersion in leverage of financial intermediaries extending credit, I propose a macroeconomic indicator that captures changes in lending standards and forecasts industrial production and unemployment.

Keywords: financial intermediation, risk premium

JEL Classification: G12, G21