The Role of Information from International Bank Lending in Mutual Fund Equity Investing
56 Pages Posted: 24 Jan 2018
Date Written: September 2017
In contrast to the literature involving U.S. bank lending domestically to U.S. firms, we find that affiliated U.S. banks’ mutual funds do not increase their holdings of equity in non-U.S. borrowing firms around new loan initiations. Mutual funds affiliated with lending banks have less equity investment and turnover in the stock of their non-U.S. borrowers as compared to non-lending bank or unaffiliated mutual funds. Reduced equity holdings increase loan spreads consistent with the preservation of the lending bank’s information monopoly, thereby encouraging further lending. Equity market turnover is most reduced when banks lend to firms in emerging nations.
Keywords: insider information, syndicated bank loans, international mutual fund investing
JEL Classification: G14, G21, G23
Suggested Citation: Suggested Citation