Development Banks and the Syndicate Structure: Evidence From a World Sample

Abstract

Do development banks affect the structure of loan syndicates? We argue that development banks' participation in syndicates can reduce the lead banks' monitoring efforts and generate higher risk diversification across lenders. Using a global dataset of syndicated loans from 2001 to 2016 for 105 countries and 44,899 deals, we show that the lead banks decrease their loan shares and form less concentrated syndicates when development banks are participant lenders. These syndicates are also composed of a higher number of foreign lenders that retain greater loan shares. We also find that development banks are not associated with higher covenant violations. Our results are robust when accounting for relationship lending, asymmetric information within the syndicate, lenders' lending expertise, borrower opacity, types of loan, and ranking hierarchy in the syndicate, among others.