The literature on syndicated loans is small, consisting of only several works. Simons (1993) underscores the importance of bank regulatory environments in the form of capital requirements and lending limits as the rationale for the existence of loan syndication markets. The author finds that loan syndications are driven primarily by the capital-constraint considerations of lead arrangers for capital-to-asset ratios, and diversification prospects for loan-to-capital ratios. Godlewski (2008) describes how the characteristics of bank supervision and financial development influence the structure of loan syndicates. The author argues that this is an organizational response to agency problems, and the results of his cross-country analysis confirm that syndicate structure is influenced by the banking environment, which is consistent with reducing agency costs and efficient recontracting objectives.
Esty and Megginson (2003) highlight the significance of legal risk on how banks adjust their syndicate structures to facilitate their governance roles. For bank monitoring and low-cost contracting functions, the authors argue that bank lenders are more likely to create smaller and more concentrated syndicates in countries with strong laws and regulations. But they note that bank lenders also create larger and more diffuse syndicates to deter strategic default when they cannot rely on the rule of law for legal enforcement mechanisms. When banks experience inefficiencies in the legal system, they assume that they are exposed to greater legal risk, which affects their lending behavior.
Lee and Mullineaux (2001) examine the factors that influence the structure of commercial lending syndicates. They investigate the efforts of the lead arranger to influence the percentage share of a loan taken by each participating syndicate member and to manage agency and information asymmetry problems within a loan syndicate. They find that syndicates are more concentrated when the borrower is less transparent (or when there is less financial information available on the borrower), and when the syndicate loan is secured. This is consistent with the observed efforts of lead arrangers to increase the likelihood of monitoring within a group because of potential agency and information asymmetry problems. The authors also find that loan syndicates are driven by credit risk; that is, banks form concentrated loan syndicates when credit risks are high. This implies that the motivation for monitoring by lead arrangers also increases when credit risks rise. But they find that syndicates are diffuse or are less concentrated when lead arrangers are perceived as reputable, and when loans have longer tenors.
Sufi (2007) analyzes the market for syndicated loans, focusing on how syndicate structure and the composition of syndicate members are influenced by information asymmetry between lenders and borrowers. Consistent with moral hazard in monitoring, the author's empirical findings suggest that the lead arranger holds a greater percentage of a loan and, in turn, forms a more concentrated syndicate when information asymmetry problems in the loan transaction are significantly high. The motivation for monitoring and due diligence encourages the lead arranger and syndicate members to form a more concentrated syndicate.
Dennis and Mullineaux (2000) determine the factors affecting a lender's decision to form and participate in a loan syndicate and, consequently, the proportion of a loan sold in the event of syndication. Their empirical evidence shows a loan is more likely to be syndicated when the borrower becomes less information-problematic and the syndicate's lead arranger becomes more reputable, and when loans have longer terms to maturity. Their results also indicate that lead arrangers hold a significant share of information-problematic loans. They conclude that loan syndications, like loan sales, are motivated by capital regulations, and that the liquidity position of the lead arranger influences the likelihood of syndication.