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.
|Place of Publication||Tilburg|
|Publisher||CentER, Center for Economic Research|
|Number of pages||53|
|Publication status||Published - 9 Oct 2019|
|Name||CentER Discussion Paper|
- regulator arbitrage
- creditor rights
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.