Affiliated Analysts and Loan Contracting

Abstract

We examine whether coverage by analysts affiliated with lenders affects loan contracting. We find that loans to borrowers covered by affiliated analysts have lower spreads but more covenants based on financial information. Further analyses suggest the results are driven mostly by ex post monitoring, instead of ex ante screening. Exploiting plausibly exogenous variation in affiliated analysts generated by changes in brokerage house affiliation, we find that the result is likely to be causal. The results suggest that analysts could transfer private information about the borrowers to the lending arms of their affiliated financial conglomerates.