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CEO Risk‐taking Incentives and Bank Loan Syndicate Structure
Author(s) -
Chen Liqiang
Publication year - 2014
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12087
Subject(s) - syndicate , incentive , business , reputation , loan , financial system , web syndication , syndicated loan , transparency (behavior) , due diligence , monetary economics , finance , economics , venture capital , microeconomics , social science , sociology , political science , law
Abstract This paper investigates the effects of a borrowing firm's CEO risk‐taking incentives on the structure of the firm's syndicated loans. When CEO risk‐taking incentives are high, syndicates are structured to facilitate better due diligence and monitoring efforts. These syndicates have a smaller number of total lenders and are more concentrated, and lead arrangers will retain a greater portion of the loan. Moreover, CEO risk‐taking incentives have a lesser effect on the syndicate structure when lead arrangers have a good reputation and a prior lending relationship with a borrowing firm, while they have a greater effect on the syndicate structure when borrowing firms have low information transparency, are financially distressed or have low growth prospects.