This paper addresses the question, “Does lenders’ culture affect their monitoring efforts and style?”, by exploring whether lender individualism affects the loan monitoring of U.S. borrowers for a sample of 27,164 syndicated loan facilities granted between 1998 and 2017. We proxy lender individualism based on the ancestral country of origin of the lead bank's CEO. We show that lender individualism leads to a less stringent monitoring style. We find that individualist lenders resort less to covenant monitoring, impose less strict contract terms, such as performance pricing and rely more on soft information. We also provide evidence that individualist lenders retain a larger loan share and deal with a larger number of lenders. Finally, we find that some governance characteristics (board size and percentage of female directors) and other CEO features (cash compensation, tenure, and non-duality) moderate the negative association between lender individualism and loan monitoring.

Does a decrease in shareholder litigation enhance managers’ monitoring efforts by ensuring adequate firm risk management? We explore how state universal demand (UD) laws (which limit shareholder litigation as a mechanism to discipline managers), affect bank holding companies’ (BHCs) risk. Using a difference-in-differences analysis, we show that BHCs reduce their tail risk exposures after the implementation of UD laws, which is achieved by improving loan asset quality. Indeed, BHCs appear to apply stricter contract terms for syndicate loans to risky and opaque borrowers. We also show that UD law implementation leads to changes in BHC board composition by increasing the proportion of outside directors, the number of independent directors in audit committees and the number of independent directors with financial expertise.