Product Market Peers in Lending: Information Processing Efficiencies and Proprietary Costs
54 Pages Posted: 16 Jan 2013 Last revised: 10 Nov 2016
Date Written: November 7, 2016
This study examines how product market peers affect lending relationships. We contend that firms are more likely to borrow from a bank that has previously lent to a peer, to mitigate information asymmetry with the bank when potential information processing efficiencies are greater (i.e., information efficiency hypothesis), but there will be a decreased propensity to borrow from a shared lender when the costs of leaking proprietary information are greater (i.e., proprietary information leakage hypothesis). We find that, on average, firms avoid borrowing from banks that lend to a product market peer. We also document evidence consistent with both hypotheses in both cross-sectional and difference-in-difference research designs. In additional analysis, we examine the pricing of loans and observe loan pricing effects consistent with these two hypotheses.
Keywords: Lender Choice, Information Asymmetry, Proprietary Information
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