Banking market concentration and syndicated loan prices

This paper investigates the ‘price–concentration’ relationship in pricing syndicated loans. By measuring bank concentration at a state level in US, we show supporting evidence to market power hypothesis that syndicated loan prices are positively associated with the concentration of both borrower’s and lead arranger’s markets but not the concentration of participant lenders’ markets. We also show that loan prices are more sensitively to lead arranger’s market concentration than to borrower’s and a borrower could reduce loan costs by borrowing from a less concentrated bank market. In sharp contrast, loan prices are negatively associated with bank concentration if a loan syndication is led by an investment bank or non-bank financial institution. Our findings are robust to a variety of bank concentration measures and model specification.