What's My Share? Information Acquisition by Loan Syndicate Participants

Abstract

Participant lenders in syndicated loans depend on information collected by the lead lender for borrower screening and monitoring, as the lead lender is primarily responsible for ex-ante due diligence in evaluating borrowers. This gives rise to both moral hazard and adverse selection concerns within the syndicate. We investigate whether participant lenders use borrower accounting reports to mitigate these information frictions. We find that participant lenders’ SEC EDGAR searches of borrower filings are positively associated with their shares of the syndicated loan, consistent with mitigation of intra-syndicate information asymmetry. This association is stronger for searches of current period filings and 10-K/Qs, and weaker when the lead lender is more reliable and when the borrower’s information environment is richer. This novel evidence enhances our understanding of the role of accounting information in facilitating deal formation in syndicated loan markets.