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. (doi: 10.1016/j.jbankfin.2015.02.008)
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Abstract
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: | Articles |
|---|---|
| Status: | Published |
| Refereed: | Yes |
| Glasgow Author(s) Enlighten ID: | Kokas, Dr S |
| Authors: | Iosifidi, M., and Kokas, S. |
| College/School: | College of Social Sciences > Adam Smith Business School > Accounting and Finance |
| Journal Name: | Journal of Banking and Finance |
| Publisher: | Elsevier |
| ISSN: | 0378-4266 |
| ISSN (Online): | 0378-4266 |
| Published Online: | 20 February 2015 |
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