- Title
- The effect of trust on syndicated loan contracts
- Creator
- Blatchford, Joshua
- Relation
- University of Newcastle Research Higher Degree Thesis
- Resource Type
- thesis
- Date
- 2022
- Description
- Research Doctorate - Doctor of Philosophy (PhD)
- Description
- This thesis presents three empirical studies on the effect of trust on various terms of syndicated loan contracts. The three studies combined provide a comprehensive assessment of the role of trust, accumulated through CSR performance, in determining loan spreads, loan size, covenant restrictions, and the structure and composition of the lending syndicate. The three empirical studies address the following research questions respectively; How does a borrower’s trust affect the price terms of loan contracts?; How does a borrower’s trust affect the covenant terms of its loan contracts?; How does borrower and lead lender trust affect the structure of the lending syndicate? The first study determines the effect of a firm’s trust on the costs of external debt. The results of an international sample of syndicated bank loans find a context-dependent value of trust in determining loan pricing. Specifically, firms from high trust countries benefit more from firm-level trust accumulation by receiving lower loan spreads. Additionally, the value of trust for loan spreads is increased during a financial crisis. The study provides further evidence that higher trust also enables borrowers to receive larger loans. The relationship between trust and loan terms is influenced by the extent of information asymmetry between the borrower and the lender. The study extends the literature on firm-level determinants of loan contract terms by quantifying the benefits of trust, as a form of firm-soft information, on external financing outcomes. The second study investigates the effect of trust on the non-price terms of loan contracts, specifically the covenant restrictions. Covenants are included in loan contracts as formal monitoring and control devices for lenders. The results show that higher firm-level trust reduces covenant restrictions in syndicated loan contracts around the world. The relationship between trust and covenant intensity is stronger for firms with a higher level of information asymmetry and in countries with transactional banking systems. Additionally, firm-level trust reduces the performance covenant restrictions and has no impact on capital covenant restrictions. The study has implications for borrowers globally. The results indicate that firm-level informal monitoring, as indicated by the firms accumulated level of trust, reduces the need for formal covenant restrictions in the loan contract. Additionally, the results suggest that firm-level trust plays an important role in mitigating the information asymmetry between borrowers and lenders, resulting in less restrictive loan contracts. The final empirical study examines the effect of trust on loan syndicate structure. The structure of the lending syndicate is an important component of syndicated loans that can significantly affect a firm’s access to finance. Loan syndicates present a degree of adverse selection and moral hazard information asymmetry between both the borrower and the lead arranger, and between the lead arranger and participant lenders. The results in this study favour a borrower quality and risk-diversification view of trust in influencing lead share retention – borrower trust is related to more concentrated lending syndicates as less risk diversification is required across the lending syndicate. Borrower trust is also related to a larger number of lenders, and a greater likelihood of foreign lender participation in the lending syndicate. The study also assesses the role of lead lender trust and shows that higher lead lender trust enables lead lenders to syndicate out larger portions of the loan. The results of this study provide insight into the role of both the borrowers’ and the lenders’ built trust in facilitating access to private debt through the syndicated loan market.
- Subject
- trust; syndicated loans; loan terms; covenants; syndicate structure; corporate social responsibility; social capital
- Identifier
- http://hdl.handle.net/1959.13/1445263
- Identifier
- uon:42545
- Rights
- Copyright 2022 Joshua Blatchford
- Language
- eng
- Full Text
- Hits: 1105
- Visitors: 1530
- Downloads: 488
| Thumbnail | File | Description | Size | Format | |||
|---|---|---|---|---|---|---|---|
| View Details Download | ATTACHMENT01 | Thesis | 1 MB | Adobe Acrobat PDF | View Details Download | ||
| View Details Download | ATTACHMENT02 | Abstract | 175 KB | Adobe Acrobat PDF | View Details Download |