Regulatory arbitrage and cross-border syndicated loans

Asli Demirguc-Kunt, Balint L. Horvath, Harry Huizinga

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Abstract

This paper investigates how international regulatory and institutional differences affect lending in the cross-border syndicated loan market. Lending provided through a foreign subsidiary is subject to subsidiary-country regulation and institutional arrangements. Multinational banks’ choices between loan origination through the parent bank or through a foreign subsidiary provide information about these banks’ preferences to operate in countries with varying regulations and institutions. Our results indicate that international banks have a tendency to switch loan origination towards countries with less stringent bank regulation and supervision consistent with regulatory arbitrage, but that they prefer to originate loans in countries with higher-quality institutions related to financial market monitoring, creditor rights, and the speed of contract enforcement.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages53
Volume2019-028
Publication statusPublished - 9 Oct 2019

Publication series

NameCentER Discussion Paper
Volume2019-028

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Keywords

  • regulator arbitrage
  • creditor rights

Cite this

Demirguc-Kunt, A., Horvath, B. L., & Huizinga, H. (2019). Regulatory arbitrage and cross-border syndicated loans. (CentER Discussion Paper; Vol. 2019-028). Tilburg: CentER, Center for Economic Research.