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This chapter examines the effect of creditors’ monitoring role on the profitability of firm acquisitions. We use the shares retained by the lead arranger of a syndicated loan as a proxy for monitoring level. We find that acquirer announcement returns are positively related to the shares retained by the lead arranger. The effect of the lead arranger’s shares on the acquirer’s return becomes pronounced in cash acquisition deals, and when there exist financial covenants. Our results suggest that lead arrangers are important not only for monitoring loans but also for successful acquisitions by borrowers. An important policy implication of the main findings of this chapter on bank monitoring is that policy makers should design financial covenants to improve the efficiency of monitoring activities by lead arranging banks in syndicated bank loan deals.

Prior research suggests that given the legal environment in the U.S., smaller syndicates with fewer lead banks should represent “best practices” to promote efficient monitoring and ease of renegotiation. Such syndicates should be associated with lower loan spreads. Controlling for other influences on loan pricing, we conduct tests of this proposition drawing on data from DealScan, Compustat and Federal Reserve Call Reports for U.S. loans between 1988 and 1999. Consistent with our hypothesis, the number of lead lenders is shown to have a significant positive influence on loan yield spreads.

We extend Diamond's (1989, 1991) life-cycle hypothesis to posit that, once they reach the stage of bank borrowing, firms begin with prime loans and evolve toward borrowing more cheaply at LIBOR as they grow larger, less risky and less characterized by asymmetric information. We conduct multinomial logit regressions to explain firms’ membership in one of three groups: prime only, prime and LIBOR, and LIBOR. We also examine spreads over prime and LIBOR and find that loans set up to allow borrowing at prime carry higher spreads than those allowing borrowing at LIBOR. Both sets of tests support the life-cycle hypothesis.

We investigate the nature of mid-loan relationships between bank-lenders and borrowers, to test whether firms borrow from banks to signal quality. Using the LPC DealScan, CRSP, and Wall Street Journal databases, we test whether borrower abnormal returns are related to bank, borrower, deal, and/or event characteristics during the duration of the loan. We demonstrate that borrower abnormal returns are related to mid-loan bank events, defined as an event resulting in bank abnormal returns beyond a specified threshold. The results suggest that borrowers are affected by bank events mid-loan, even when the event is not directly related to bank default.

Japanese regional banks have actively expanded their overseas business in emerging markets, and this topic is quite important for regional banks that have confronted severe business environments over the decades. An aging population suppresses long-term increases in loan demands, and stagnant economic conditions lead to lowered interest rates in the medium-term. Overseas business is a promising business field for regional banks, but recent developments have not been investigated in detail.

This chapter examines overseas investments using data from regional banks’ financial reports. Our sample comprises 44 regional banks without overseas branches, and a research period from FY2011 to FY2015. We demonstrate different overseas business patterns among regional banks. This investigation uses X-means clustering, which is nonhierarchical, as this method automatically presents an optimal number of clusters, and sorts regional banks into their appropriate clusters.

The X-means clustering method indicates five business patterns among regional banks. This also characterizes respective clusters and demonstrates that medium-sized banks actively develop security investments, which increases overseas business’s contributions to profits. Meanwhile, small banks cannot expand overseas investments, which differ from other banks. These banks must seek other business models to compensate for this decline in their earning power.

This paper analyzes the role of trade credit in financial crises. Using newly collected data, we investigate the impact of negotiated agreements between debtor and creditor countries on bilateral trade. Our results indicate that exports to creditor countries rise considerably after debt restructuring agreements in the period 1980–1997, while we find no effect for imports and for the more recent period. We identify trade credit as one key channel behind this positive effect. Apparently, crisis resolution efforts, in particular agreements to extend and roll over trade credits, play a crucial role for export recoveries. This gives some support to current worldwide efforts to sustain trade financing via coordinated policy interventions.

We consider recent events in financial markets and the subsequent responses by monetary and fiscal authorities, which are impressive for their scale, innovation and flexibility in the face of sharply deteriorating circumstances. Internationally, the economic malaise brought perverse responses not least being the apparent quest for higher capital adequacy requirements than was thought necessary before the downturn. Where possible the uniqueness of the responses by authorities in the Asia-Pacific region is highlighted. Other features impeding recovery cannot be dealt with immediately. Among these, the most important is the valuation procedures associated with accounting rules.

The Chinese banks have increased their market entry to Russia since their initial entry in 1993 and have expanded their banking business operations in Russia significantly. The banking sector interaction between China and Russia has received great attention and interests from businesses as well as policy-makers. This chapter describes the main activities of Chinese banks in Russia, assesses their achieved results, and discusses their opportunities for further development of banking interactions of the Chinese banks and the Russian banking sector in the future.