This paper exploits a unique data set on bank–firm relationships based on syndicated loan deals to examine the effect of banks’ credit risk and capital on firms’ risk and performance. Our data set is a multilevel cross-section, which essentially allows controlling for all bank and firm characteristics through respective fixed effects, thus avoiding concerns regarding omitted variables. We find that banks with higher credit risk are associated with more risky firms, with lower profitability and market value. In turn, we find that banks with higher risk-weighted capital ratios lend to riskier firms with less market value. Our results are indicative of a strong adverse selection mechanism and highlight the need to monitor the risky banks more closely, especially as we consider large and influential syndicated loan deals.

This paper investigates whether foreign banks help mitigate the effects of domestic liquidity shocks by exploiting a policy-induced shock to the U.S. wholesale market for liquidity and matched bank-syndicated loan data. We find that, following the 2011 Federal Deposit Insurance Corporation (FDIC) regulatory change to the cost of wholesale liquidity, foreign banks, which faced a relatively positive liquidity shock, accumulated more reserves by engaging in liquidity hoarding, but did not expand their lending. These responses are more pronounced for foreign banks affiliated with complex global bank holding companies and whose parent banking systems experienced distress at the moment of the shock.

Does market power of banks affect firm performance? To answer this question we examine 25,236 syndicated loan facilities granted between 2000 and 2010 by 296 banks to 9,029 US non-financial firms. Accounting for both observed and unobserved bank and firm heterogeneity, we find that firms that were recently poorly performing obtain loans from banks with more market power. However, in the year after loan origination market power positively affects firm performance, but only if it is not too high. Our estimates thus suggest that bank market power can facilitate access to credit by poorly performing firms, yet at the same time also boosts the performance of the firms that obtain credit.

International audience

This paper explores the main forces impacting diversity and the role of women at senior management and board level in finance. In addition, it offers a synopsis of selected research examining the board composition, corporate social responsibility and external corporate governance. We focus mainly on empirical papers that employ quasi-natural experiments and textual analysis to confirm the interdisciplinary nature of diversity. Further, we identify priorities for future research that can advance our understanding on this research area, and the broader field of financial studies, encompassing the growing interest in the boundaries between the economic, the psychological and the social.

We examine the relationship between female board representation and the cost of lending, using a dataset of 13,714 loans from 386 banks matched with 2432 non-financial firms from 1999 to 2013. We find that firms with female directors command lower loan spreads. In addition, female independent directors have a stronger impact on lowering spreads compared to female directors' other attributes. However, as firms build relationships with their lenders this effect becomes less potent. Finally, when we introduce firm-level heterogeneity we document that changes in gender diversity exert a stronger impact on the cost of lending in the case of bank-dependent firms, especially for relationship borrowers.

By adjusting lending, banks can smooth the macroeconomic impact of deposit fluctuations. This may, however, lead to extended periods of disproportionately high lending relative to deposit intake and, under certain conditions, to the accumulation of risk in the banking system. Using bank-level data for 8477 banks in 129 countries for the period from 1992 to 2015, we examine how banks' market power and other characteristics may contribute to smoothing or amplification of shocks and the accumulation of risk. We find that the higher their market power the lower is the growth rate of lending relative to deposits. As a result, in periods of falling deposits higher market power for the average bank is associated with a greater fall in lending, consistent with amplification of adverse effects during relatively bad times. Strikingly, at very high levels of market power, there is a threshold past which the effect of market power on the growth rate of lending relative to deposits turns positive so that “superpower” banks may contribute to the smoothing of adverse effects when deposits are falling. In periods of rising deposits, however, such banks are more likely to lead to amplification and accumulation of risk in the economy.

A large literature emphasizes financial networks, but understanding how these networks influence lending decisions over the business cycle remains challenging. We exploit the overlapping bank portfolio structure of US syndicated loans to construct a financial network. Using techniques from spatial econometrics, we document large spillovers in lending conditions during good times, driven by commonality in banks’ loan portfolio exposures. A standard deviation increase in peers’ lending rates is associated with an increase in a bank’s lending rate of 17 basis points. However, these spillovers vanish in a large recession. We interpret these findings through a syndicate lending model where information spillovers driven by loan portfolio commonality dilute banks’ incentives to produce private information on borrowers during good times.

We investigate the effect of regulatory enforcement actions on banks' reputation by estimating the effect of non-compliance with laws and regulations among lead arrangers on the structure of syndicated loans. Consistent with a regulatory reputational stigma, a punished lead arranger increases her loan share to entice participants to continue to co-finance the loan. Consequently, when punished lead arranger initiates a new syndicated loan, then this loan tends to be more concentrated and co-funded by participants with previous collaboration with the lead arranger. However, the observed share increases by punished lead arrangers are seemingly mitigated by extending the loan guarantees, performance pricing provisions, and covenants.