Loan Partnerships with Intervention of Regulatory Bailouts: Evidence of TARP effect on Syndicated Loan Structure

In this paper we investigate the bailout effect on syndicated loan structure by investigating the TARP and Non-Tarp Loans. Some of the recent papers investigating the effect of TARP in terms of performance and efficiency show mixed results. To the best of our knowledge this is the first paper which investigates the bailout effect by looking at syndicated loan structure. We find that while TARP has provided low cost funding during the crisis, it has effectively prevented moral hazard behaviors of its participants as evidenced by more diversified syndicated loan structure of TARP loans. Furthermore our findings show that diversification of syndicated loan is strengthened for above median loan size group and loans whose lender banks have above median asset size and above median tier 1 capital ratio. * Bolortuya Enkhtaivan is a doctoral student at Texas A&M International University and her contact address is: 5201 University Blvd, WHTC-211, Laredo, TX 78041; Phone: 956-220-6502; E-mail: bolortuya_enkhtaivan@dusty.tamiu.edu † Siddharth Shankar is an associate professor of finance at Texas A&M International University and his contact address is: 5201 University Blvd, WHTC-203B, Laredo, TX 78041; Phone: (956) 326-2504; E-mail: sshankar@tamiu.edu Loan Partnerships with Intervention of Regulatory Bailouts: Evidence of TARP effect on Syndicated Loan Structure