The Network and Reputation of Financial Institutions and the Certification Value of Bank Loans
38 Pages Posted: 23 Apr 2014
Date Written: April 22, 2014
Social networks and reputation play important roles in mitigating informational frictions related to financial intermediation, in particular bank lending. We investigate the effect of financial institutions’ network and reputation on the certification value of bank loans using data on syndicated loans to European companies. We find that the presence of more central and reputable leaders in the syndicate increases the stock market reaction to loan announcement. This certification value is reinforced when informational frictions are more important, but vanishes away in case of severe disruptions in the functioning of financial markets, such as during the financial crisis of 2008.
Keywords: bank loan, syndicated lending, reputation, social network analysis, betweenness centrality, event study, Europe.
JEL Classification: G21, G24, L14.
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