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Syndicated bank loans and capital structure

Syndicated bank loans and capital structure Purpose – The purpose of this study is to examine the impact of interest rates on the size and the maturity choice of a syndicated bank loan. In addition, it attempts to determine the long‐run impact of a syndicated loan on the borrower's capital structure. Design/methodology/approach – The paper uses a sample of 6,903 syndicated bank loans in the USA, covering the period 1984‐2004. First, all syndicated loans are categorized into two groups: loans in periods of increasing interest rates, and loans in periods of decreasing rates. Then, non‐parametric tests are performed to compare the characteristics of the two groups, including the proceeds from the loans, and robust regressions are used to examine the impact of the interest rates on the maturity choice. Finally, robust regressions are employed to examine the long‐run impact of the interest rates on the borrowers' leverage ratios. Findings – On the whole, the results reject the market timing theory of capital structure for syndicated bank loans. Firms in the two groups borrow in similar amounts, and in the long run, the difference between the two groups' leverage ratios is statistically insignificant. On the other hand, firms tend to choose longer maturities when the interest rates are low compared to the rates two or three years ago. Originality/value – To the best of the author's knowledge, this is the first study that links debt market conditions to the leverage ratios of firms that borrow in the syndicated bank loan market. In other words, this is the first study that tests the market timing theory of capital structure for syndicated bank loans. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

Syndicated bank loans and capital structure

Halil D. Kaya
Managerial Finance , Volume 37 (8): 18 – Jul 5, 2011
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References (50)

Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
0307-4358
DOI
10.1108/03074351111146184
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this study is to examine the impact of interest rates on the size and the maturity choice of a syndicated bank loan. In addition, it attempts to determine the long‐run impact of a syndicated loan on the borrower's capital structure. Design/methodology/approach – The paper uses a sample of 6,903 syndicated bank loans in the USA, covering the period 1984‐2004. First, all syndicated loans are categorized into two groups: loans in periods of increasing interest rates, and loans in periods of decreasing rates. Then, non‐parametric tests are performed to compare the characteristics of the two groups, including the proceeds from the loans, and robust regressions are used to examine the impact of the interest rates on the maturity choice. Finally, robust regressions are employed to examine the long‐run impact of the interest rates on the borrowers' leverage ratios. Findings – On the whole, the results reject the market timing theory of capital structure for syndicated bank loans. Firms in the two groups borrow in similar amounts, and in the long run, the difference between the two groups' leverage ratios is statistically insignificant. On the other hand, firms tend to choose longer maturities when the interest rates are low compared to the rates two or three years ago. Originality/value – To the best of the author's knowledge, this is the first study that links debt market conditions to the leverage ratios of firms that borrow in the syndicated bank loan market. In other words, this is the first study that tests the market timing theory of capital structure for syndicated bank loans.

Journal

Managerial Finance – Emerald Publishing

Published: Jul 5, 2011

Keywords: Syndicated bank loans; Debts; Interest rates; Capital structure; Leverage

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