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Chapter 5: Corporate Borrower Nationality and Global Presence: Cross-Country Evidence on the Pricing of Syndicated Bank Loans
Joel Houston, Jennifer Itzkowitz and Andy Naranjo* 5.1 INTRODUCTION The syndicated loan market is an important source of funding for firms around the world. Given the global nature of the syndicated loan market, a series of issues arise concerning the extent to which this market facilitates the flow of capital worldwide and the extent to which it is internationally integrated. With these issues in mind, we pose two questions in this chapter: what does the pricing of the syndicated loan market look like, and what are the factors that influence it? When thinking about these issues, it becomes immediately clear that globalization has often blurred the national identity of both lenders and borrowers. Many firms sell their goods and services throughout the world and/or own assets in countries outside of where they are headquartered. Likewise, many global lenders have operations and units throughout the world. One of the key contributions of our study is that we specifically control not just for the country in which the firms are headquartered or where the loan is syndicated, but we also take into account the extent to which the borrowers and lenders are linked in the different markets. In contrast to what one might expect in an internationally integrated market, we find that loan pricing varies across countries and depends crucially on the borrower’s nationality and global presence. Consistent with Carey and Nini’s (2007) ‘pricing puzzle’, we also find that interest rate spreads on syndicated loans to corporate borrowers are significantly smaller in...
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