Non-bank lending and firm performance: Evidence from the syndicate loan market

We find that in the leveraged loan sector, firms borrowing from non-banks have lower profitability following loan originations, compared to firms borrowing from banks, after controlling for observable factors. As non-bank borrowers experience less intense monitoring than bank borrowers, they engage in more risk-taking, which could explain their lower profitability following loan issuance. Using the leveraged lending guidance as a plausibly exogenous shock, which resulted in the migration of borrowers from banks to non-banks, we provide causal evidence corroborating our main results. Overall, our findings suggest that macroprudential policies which exclusively target the traditional banking sector may have negative consequences.