The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
We study 1,400 UK syndicated loans, together with the financial history of the lead bank and
the borrowing firm. We interpret abnormal equity returns around loan announcements as the
value of the lending relationship to the firm. We find that: (i) Consistent with previous
evidence, the value of lending is higher when the firm is riskier or more opaque, suggesting
that it primarily reflects the lead bank's screening and monitoring activities. (ii) As a bank
becomes larger, more profitable or more capitalized, the value of its loans first increases and
then decreases. The largest, most capitalised or most profitable banks do not give the most
valuable loans. (iii) Firms which receive low-value loans are more likely to experience low
profitability and financial distress during the lending relationship. By relating the state of
bank balance sheets to borrower performance, we offer a new angle to evaluate the impact of
financial conditions on the real economy.