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Dr. Xi Li
Associate Professor of Accounting
London School of Economics and Political Sciences

This paper examines whether shareholdings by foreign institutions could help borrowers access foreign debt. Using a sample of international syndicated loans, we find that a borrower’s foreign institutional ownership is positively associated with the likelihood of obtaining cross-border loans, and these loans tend to have more favourable pricing terms. The above association is more pronounced among borrowers domiciled in countries with weak creditor rights from which foreign lenders often shy away. In contrast, we find a negative association between a borrowers’ domestic institutional ownership and access to cross-border loans. We argue that foreign lenders, who face higher information asymmetry than domestic lenders, are able to reduce the information risk by gathering soft information from borrowers’ foreign institutional shareholders. We find evidence consistent with this argument. The positive association between borrowers’ foreign institutional ownership and the access to cross-border loans is attenuated when foreign lenders have access to high-quality hard information or other channels to access soft information. We also find that the country of the borrower’s foreign institutional shareholder has a significant predictive power of the country of foreign lender.