Cultural differences and the structure of loan syndicates

Do cultural differences between lender and borrower affect the structure of the loan syndicate? Analyzing 8031 syndicated loans to US borrowers signed between 1986 and 2007, we find that lending shares are higher for foreign arrangers than domestic arrangers. Among foreign arrangers, lending shares further increase with cultural distance. We interpret this as a result of an increased moral hazard problem driven by higher information and effort costs faced by foreign arrangers. However, previous interactions between borrowers and arrangers can reduce moral hazard, hence culturally distant arrangers are able to form diffused syndicates.