Theory suggests that unhealthy banks exhibit more pronounced flight-to-quality behavior during financial crises and, hence, the infusion of capital through unhealthy banks is less effective in relieving the liquidity shocks of vulnerable borrowers. We test these predictions by investigating how...

Loan syndication suffers from two types of agency problems – an adverse selection problem (lead arrangers pass on bad loans to the participants) and a moral hazard problem (lead arrangers shirk on their costly monitoring duties). Therefore, a lead arranger has to take a big share of the loan...

This paper tests the monitoring concentration hypothesis that loan participants can transfer monitoring incentives back to lead arrangers by purchasing credit default swaps (CDSs) from lead arrangers with the capacity to sell such contracts. Monitoring concentration appears to play a significant...