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Who lends to riskier and lower-profitability firms? Evidence from the syndicated loan market

Iosifidi, M and Kokas, S (2015) 'Who lends to riskier and lower-profitability firms? Evidence from the syndicated loan market.' Journal of Banking and Finance, 61. S14 - S21. ISSN 0378-4266

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Abstract

© 2015 Elsevier B.V. This paper exploits a unique data set on bank–firm relationships based on syndicated loan deals to examine the effect of banks’ credit risk and capital on firms’ risk and performance. Our data set is a multilevel cross-section, which essentially allows controlling for all bank and firm characteristics through respective fixed effects, thus avoiding concerns regarding omitted variables. We find that banks with higher credit risk are associated with more risky firms, with lower profitability and market value. In turn, we find that banks with higher risk-weighted capital ratios lend to riskier firms with less market value. Our results are indicative of a strong adverse selection mechanism and highlight the need to monitor the risky banks more closely, especially as we consider large and influential syndicated loan deals.

Item Type: Article
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Depositing User: Jim Jamieson
Date Deposited: 14 Apr 2015 10:59
Last Modified: 18 Mar 2019 22:15
URI: http://repository.essex.ac.uk/id/eprint/13524

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