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Relationship Banking and Loan Syndicate Structure: The Role of Private Equity Sponsors

Using a sample of syndicated loans to U.S. IPO companies, we examine how the relationship between the PE sponsor of a borrower’s IPO and the lead bank of the loan influences loan syndicate structure. We find that a stronger PE-bank relationship enables the lead bank to retain a smaller share of the loan and form a larger and less concentrated syndicate, especially when the borrower is less transparent. A stronger PE-bank relationship also attracts greater foreign bank participation. Our findings suggest that the lead bank’s relationship with a third-party financial sponsor of the borrower facilitates information production in lending.