Peer Information in Loan Pricing
54 Pages Posted: 14 Dec 2018 Last revised: 22 Sep 2022
Date Written: August 20, 2019
This paper studies the effect of peer information banks collected from their previous lending to borrowers' competitors on current loan pricing. I find that firms obtain lower loan rates when borrowing from banks that lent to close competitors recently. To establish a causal interpretation, I utilize peer firms' information-related class action lawsuit events and show that the benefit diminishes when the precision of peer information is reduced. Moreover, the effect is more pronounced for firms with larger dispersion in analyst forecasts and higher uncertainty in hard information. Overall, the findings suggest that banks learn from recent lending to peer firms and utilize peer information, especially when information asymmetry is high.
Keywords: Peer information; Loan pricing; Bank lending; Information asymmetry
JEL Classification: G14, G21, G32
Suggested Citation: Suggested Citation