Do local leads deliver contracting benefits? Evidence from emerging market syndicated loans*

This study examines whether local leads benefit bank loan contracting. Based on 2019 loans from emerging markets in 2000-2010, we find significant differences in the lending behaviors between foreign and local lead banks. Foreign lead loans contain significantly higher spread and more financial covenants than those led by all local banks. The inclusion of local banks to colead loans deliver contracting benefits as we find mixed lead loans offer lower spread and prescribe substantially more financial covenants than all foreign lead banks. Local bank involvement reduces information asymmetry between foreign lenders and local borrowers, resulting in less rigorous contracting terms.