Friends with Values – The Impact of Reputable Lead Arranger and External Auditor on Borrower’s Loan Terms

Abstract

This paper explores the certification effect of both reputable lead bank, and external auditor on various syndicated loan terms—the yield spread, loan maturity, amount, and the number of covenants. The results from two-way interaction model support significant positive certification effects. In the presence of Top 10 lead arrangers, borrowers benefit from lower loan spread, reduced number of financial covenants, extended maturity, and larger loan amount. The relationship with a reputable external auditor elevates the certification effect. The study extends prior literature by analyzing non-price terms. The results suggest that for informationally disadvantaged parties, dual certification seems to add value.