Asymmetry Information and Diversification Effect on Loan Pricing in Asia Pacific Region 2006-2010

Tanjung, Yudi Surya and Marciano, Deddy and Bartle, James (2013) Asymmetry Information and Diversification Effect on Loan Pricing in Asia Pacific Region 2006-2010. In: Asian Finance Association Meeting 2013, 15-17 Juli 2013, Nanchang, China .

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Abstract

Purpose of this study is to test the asymmetry information influence towards lead arranger and participant in syndicated loans. In syndicated loans, lead arranger are responsible in the loan establishment and act as intermediary between borrower and syndicated members. It cause participant to be highly dependant to the lead arranger. The theory predicts that the higher asymmetry information between lead arranger and participant will cause participant to expect a higher loan pricing, and a bigger lead share will reduce this effect. Conversely, a bigger lead share will resulted in a higher monitoring risk and credit risk for the lead arranger, which cause lead arranger to expect a higher loan pricing. Therefore, the establishment of loan pricing are affected by two opposite effect, asymmetry information effect (participant pricing) and diversification effect (lead pricing). This study uses two stage least squares (2SLS) to determine the existence of asymmetry information effect and diversification effect in loan pricing. This study used a sample of the entire LIBOR-based lending in Asia Pacific region for the period 2006-2010. This research shown that diversification effect indeed affecting the loan pricing in Asia Pacific, while asymmetry information effect in not proven. This is because Asia Pacific loans have a high average lead share (75%) and most of the loans have more than one lead arranger. The study also found that lenders tend to consider the economy conditions of a nation and previous relationship with the borrower than the financial performance of each borrower.

Item Type: Conference or Workshop Item (Paper)
Uncontrolled Keywords: credit risk, reputation, lead share, loan pricing, loan, syndicate
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Business and Economic > Department of Management
Depositing User: Deddy Marciano 3372
Date Deposited: 12 Feb 2018 03:31
Last Modified: 12 Feb 2018 03:31
URI: http://repository.ubaya.ac.id/id/eprint/31669

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