Agency Conflicts, Financial Distress, and Syndicate Structure: Evidence from Japanese Borrowers

We examine how borrower firm characteristics affect the size structure in the Japanese syndicated loan market for the 1999-2003 period. Consistent with the view by Lee and Mullineaux (2004), we find that syndicates are smaller when borrowers have higher credit risk, while firms with greater information asymmetry are associated with larger syndicates in Japan. These results are primarily driven by nonkeiretsu (non-business group) firms. This suggests that the role of enhanced monitoring and facilitated renegotiation is especially useful for banks participating in Japanese syndicated loan for non-keiretsu firms. On the other hand, information problems seem to be less severe for keiretsu (business group) firms which tend to have easier access to syndicated loan via the intermediation of in-house banks in the relevant syndicate. Finally, we find that keiretsu (non-keiretsu) firms have less (more) fraction of loan by their agent banks as the maturity rises. It appears that main banks of keiretsu firms with informational advantage are likely to retain less of the loan and form a more dispersed syndicate to "signal' that the loan is of high quality with increased maturity. This further confirms the view that information problems are less severe in the keiretsu firms.