Non-Bank Lending Behavior
Friday, Jan. 4, 2019 10:15 AM - 12:15 PM
- Chair: John M. Griffin, University of Texas
AbstractWe provide novel systematic evidence on the terms of direct lending by nonbank financial institutions. Analyzing hand-collected data for a random sample of publicly-traded middle-market firms during the 2010-2015 period, we find that nonbank lending is widespread, with 32% of all loans being extended by nonbanks. Nonbank borrowers are smaller, more R&D intensive, and significantly more likely to have negative EBITDA. Firms are also more likely to borrow from a nonbank lender if local banks are poorly capitalized and less concentrated. Nonbank lenders are less likely to monitor by including financial covenants in their loans, but appear to engage in more ex-ante screening. Controlling for firm and loan characteristics, nonbank loans carry about 200 basis points higher interest rates. Using fuzzy regression discontinuity design and matching techniques generates similar results. Overall, our results provide evidence of market segmentation in the commercial loan market, where bank and nonbank lenders utilize different lending techniques and cater to different types of borrowers.
Loan Syndication Structures and Price Collusion
AbstractHow does the organizational form of loan syndicates evolve and what are the effects on price collusion? We develop a novel measure of distance in lending expertise among syndicate lenders, and relate this novel measure to the organizational form of loan syndicates and loan pricing. Studying the U.S. syndicated loan market from 1989 to 2017, we find that the organizational form of loan syndicates significantly varies across our lender measure based on similar specializations in lending which we call syndicated distance. Large lead arrangers prefer to form close and concentrated syndicates by letting lenders with similar lending expertise into their syndicates and allocating those lenders higher loan shares. Analyzing loan pricing, we find that concentrated syndicates possess improved screening abilities, but collude on loan pricing. Consistent with Hatfield et al. (2017), we find however that price collusion of concentrated syndicates only occurs during periods of low market concentration. Our findings imply that both the organizational form of loan syndicates and the level of market concentration affect price collusion.
Trust in Lending
AbstractThis paper develops a theory of trust in lending, and uses it to analyze the competitive interactions between banks and non-bank lenders such as fintech firms. Trust enables lenders to have assured access to financing regardless of market conditions, whereas a loss of investor trust makes this access conditional on market conditions and lender reputation as reflected in the perceived incentives of self-interested lenders to make prudent loans. Banks have stronger incentives to maintain trust—they are “trusted lenders”. When borrower defaults erode trust in lenders, banks are able to survive the erosion of trust when fintech lenders do not. Trust is important for all lenders, but is essential for fintech lenders to operate. Trust is also asymmetric in nature—it is more difficult to gain it than to lose it. We also discuss when informational transparency can substitute for trust and when it cannot.
- G2 - Financial Institutions and Services