Does Poor Performance Damage the Reputation of Financial Intermediaries? Evidence from the Loan Syndication Market

We investigate the effect of poor performance on financial intermediary reputation by estimating the effect of large-scale bankruptcies among a lead arranger's borrowers on its subsequent syndication activity. Consistent with reputation damage, such lead arrangers retain larger fractions of the...

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Bibliographic Details
Published in:The Journal of finance (New York) 2011-12, Vol.66 (6), p.2083-2120
Main Authors: GOPALAN, RADHAKRISHNAN, NANDA, VIKRAM, YERRAMILLI, VIJAY
Format: Article
Language:English
Subjects:
Bank loans
Bankruptcy
Borrowing
Broadcast syndication
Chapter 11 bankruptcy
Financial intermediaries
Financial services
Financial services industries
Lenders
Loans
Participating loans
Portfolio management
Reputations
Studies
Syndicates
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Summary:We investigate the effect of poor performance on financial intermediary reputation by estimating the effect of large-scale bankruptcies among a lead arranger's borrowers on its subsequent syndication activity. Consistent with reputation damage, such lead arrangers retain larger fractions of the loans they syndicate, are less likely to syndicate loans, and are less likely to attract participant lenders. The consequences are more severe when borrower bankruptcies suggest inadequate screening or monitoring by the lead arranger. However, the effect of borrower bankruptcies on syndication activity is not present among dominant lead arrangers, and is weak in years in which many lead arrangers experience borrower bankruptcies.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.2011.01692.x