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Market-Based Solutions to Vital Economic Issues
Research
Aug 9, 2019

The Influence of Loan Officers on Loan Contract Design and Performance

Abstract

We investigate the extent to which loan officers generate individual effects on the design and performance of syndicated loan deals. We construct a novel database containing the identities of 6,821 loan officers involved in structuring syndicated loan deals. This data allow us to exploit movement of loan officers across banks to disentangle loan officer effects from bank fixed effects and estimate loan officers’ influence on both lending terms and loan performance. We find that loan officers have a significant influence on loan terms and loan performance that is incremental to bank and borrower characteristics. Our evidence suggests that loan officers exert less influence over interest spreads than over covenant package design. We also provide evidence consistent with recent comparable loan deals embedding hard information that induces variation in loan spreads that is beyond the control of loan officers. In contrast, we find no evidence that recent comparables induce non-discretionary variation in covenant design. Finally, we provide evidence consistent with covenant package design serving as a channel through which loan officers influence loan performance.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.


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