National development banks and loan contract terms: Evidence from syndicated loans

•We build a new database of national development banks (NDBs) worldwide.•We study whether NDBs fill gaps in syndicated loan markets.•We find that NDBs provide long-term and high-risk credit.•We find that NDBs support financially constrained borrowers.•NDBs play a countercyclical role during global liquidity cycles. In this study, we examine whether national development banks (NDBs) fill market gaps in the syndicated loan market. Existing theories make conflicting arguments, but little empirical research has systematically investigated the roles of NDBs in credit markets. To fill the gap, we build a novel and comprehensive list of NDBs worldwide. Using a large, international sample of non-sovereign syndicated loans over the past two decades, we find that loans with NDBs have longer maturity and higher loan spreads than those without. These results hold using the propensity score matching technique and the treatment effects model that account for the endogenous selection of NDBs. We also find that NDBs provide financial support for credit-rationed borrowers and play a countercyclical role during global liquidity cycles. Our study implies that NDBs address market failures in the syndicated loan market.