Borrowing Beyond Borders: The Geography and Pricing of Syndicated Bank Loans

Abstract

We examine the global geography and pricing of the syndicated loan market using a sample of more than 13,000 loan packages issued to 4,713 firms headquartered across 10 countries during the 1998 to 2004 sample period. Our results provide insights into the relative importance of information costs, cross-country differences in legal and regulatory costs, and cross-country competition in bank lending. Consistent with Carey and Nini's (2006) pricing puzzle, we find that, on average, loans to European firms are significantly cheaper than loans to North American firms by approximately 40 basis points. However, we find that the price differences between these markets holds primarily for those firms that do not have complete access to European capital markets. That is, firms headquartered in North America with significant assets or sales in Europe get the European discount by using a European lead lender. At the same time, we find that large firms often pay lower rates when borrowing from a foreign lender. Interestingly, this result holds for both North American firms borrowing in Europe as well as for European firms borrowing in North America. Therefore, it appears that global competition has helped reduce borrowing costs for those firms that have greater access to global lending markets. Our finding that discounting on foreign loans to large firms occurs in a similar fashion in both Europe and North America also suggests that European lenders do not have a persistent competitive or regulatory advantage.