The Effect of Corruption Perception Index and Country Risk Index on Syndicated Loan Establishment and Structure in Asia 1999-2003

Abstract

This paper tests whether the corruption perception index (CPI), and country risk index, both being macro economic variables, could affect the lead arranger decision for syndicated loans or the size allocation for syndicated loans.In this research, we use logit methodology to analyze the lead arranger decision to approve a syndicated loans application. To analyze the size determination, we use tobit model analysis. The sample for this research came from all recorded loan transaction in Asia during the period 1999-2003. To strenghten the research analysis, we also apply robustnest check with an ordinary least square method.From this research, it is showed that the lead arranger consider their reputation and certification effect as an important factor that lead them to prefer a low risk syndicated loans. For size determintation, lead arranger will decide larger size for a higher risk loan, since they expect a higher return as a risk compensation for the investment.