Credit Market Spillovers: Evidence from a Syndicated Loan Market Network

46 Pages Posted: 3 Nov 2017

See all articles by Abhimanyu Gupta

Abhimanyu Gupta

University of Essex - Department of Economics

Sotirios Kokas

University of Glasgow - Adam Smith Business School

Alexander Michaelides

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Date Written: May 19, 2017

Abstract

A large theoretical literature emphasizes the importance of financial networks, but empirical studies remain scarce. We exploit the overlapping bank portfolio structure of syndicated loans to construct a financial network and characterize quantitatively its evolution over time. A spatial autoregressive model provides an ideal methodological framework to estimate a linear interaction function, a frequently used building block of theoretical network models. We provide evidence of economically large spillovers in loan rates from peers' decisions during normal times that vanish in a large recession. These findings are consistent with learning externality models, where reliance on private signals rises during recessions. Counterfactual experiments confirm the quantitative importance of spillovers on lending rates.

Keywords: Syndicated loan market, financial networks, spillovers, cost of lending, spatial autoregression, linear interaction function.

JEL Classification: G01, G21

Suggested Citation

Gupta, Abhimanyu and Kokas, Sotirios and Michaelides, Alexander, Credit Market Spillovers: Evidence from a Syndicated Loan Market Network (May 19, 2017). Available at SSRN: https://ssrn.com/abstract=3063886 or http://dx.doi.org/10.2139/ssrn.3063886

Abhimanyu Gupta

University of Essex - Department of Economics ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Sotirios Kokas (Contact Author)

University of Glasgow - Adam Smith Business School ( email )

Glasgow, Scotland
United Kingdom
0044141 330 4297 (Phone)

HOME PAGE: http://https://sites.google.com/site/sotirioskokas/home

Alexander Michaelides

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
164
Abstract Views
990
PlumX Metrics