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Local versus foreign banks: A home market advantage in loan syndications

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  • Vu, Tram
  • Do, Viet
  • Skully, Michael
Abstract
This paper investigates the contract terms of local versus foreign bank lead loan syndications to test two opposing theories: the home market advantage gained by closer geographical proximity and soft information from existing banking relationships, versus the hold-up problem where banks exploit their information advantage at the borrower's expense. The home market advantage was supported with domestic banks informationally superior to their foreign counterparts. Loans arranged by the former carry lower interest rates, have longer maturities, and are less likely to require collateral. These results are robust after controlling for the non-randomness of the lender–borrower matching process.

Suggested Citation

  • Vu, Tram & Do, Viet & Skully, Michael, 2015. "Local versus foreign banks: A home market advantage in loan syndications," International Review of Financial Analysis, Elsevier, vol. 37(C), pages 29-39.
    • Handle: RePEc:eee:finana:v:37:y:2015:i:c:p:29-39
    DOI: 10.1016/j.irfa.2014.11.002
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    Cited by:

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    2. Kostas Pappas & Alice Liang Xu, 2023. "Do foreign lenders' national cultures affect loan pricing?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 2006-2036, April.
    3. Almaghrabi, Khadija S., 2021. "Borrowing during periods of policy uncertainty: The role of foreign lenders," International Review of Financial Analysis, Elsevier, vol. 77(C).
    4. Yildirim, Canan & Efthyvoulou, Georgios, 2018. "Bank value and geographic diversification: regional vs global," Journal of Financial Stability, Elsevier, vol. 36(C), pages 225-245.
    5. Lee, Edward & Pappas, Kostas & Xu, Alice Liang, 2020. "Foreign Lenders’ adoption of performance pricing provisions in syndicated loans," Journal of Banking & Finance, Elsevier, vol. 118(C).
    6. Meslier, Céline & Sauviat, Alain & Yuan, Dian, 2020. "Comparative advantages of regional versus national banks in alleviating SME's financial constraints," International Review of Financial Analysis, Elsevier, vol. 71(C).
    7. Chan, Sok-Gee & Aktan, Bora & Burton, Bruce & Koh, Eric H.Y., 2021. "The impact of soft information and institutional quality on foreign bank efficiency – Evidence from ASEAN-5 countries," International Review of Economics & Finance, Elsevier, vol. 74(C), pages 23-32.
    8. Viet Do & Tram Vu, 2018. "The additional cost of hedging in foreign currency loans," Australian Journal of Management, Australian School of Business, vol. 43(2), pages 305-327, May.

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    More about this item

    Keywords

    Loan syndication; Home market advantage; Foreign banks; Asymmetric information;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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