Bank Dependence in Emerging Countries: Cross-Border Information Percolation in Mutual Fund Equity Investing

Forthcoming, Journal of International Business Studies

41 Pages Posted: 12 Apr 2019 Last revised: 13 Sep 2019

See all articles by Linda Allen

Linda Allen

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Suparna Chakraborty

University of San Francisco

Sonali Hazarika

Zicklin School of Business, Department of Economics and Finance, Baruch College - The City University of New York

Chih-Huei (Debby) Su

University of St. Thomas, Houston

Date Written: September 11, 2019

Abstract

In contrast to the literature involving U.S. bank domestic lending, we find that mutual funds affiliated with lending banks reduce their equity investment and turnover in the non-U.S. listed stock of their non-U.S. borrowers compared to non-lending banks or unaffiliated mutual funds. Reduced equity holdings increase loan spreads, preserving the lending bank’s cross-border information monopoly. Equity market holdings and turnover are reduced when banks lend to firms in emerging nations and when the geographic distance between the lender and the mutual fund manager is greatest. Thereby, long-range information percolation may benefit global institutions at the expense of individual subsidiaries.

Keywords: insider information, syndicated bank loans, international mutual fund investing

JEL Classification: G14, G21, G23

Suggested Citation

Allen, Linda and Chakraborty, Suparna and Hazarika, Sonali and Su, Chih-Huei (Debby), Bank Dependence in Emerging Countries: Cross-Border Information Percolation in Mutual Fund Equity Investing (September 11, 2019). Forthcoming, Journal of International Business Studies . Available at SSRN: https://ssrn.com/abstract=3357149 or http://dx.doi.org/10.2139/ssrn.3357149

Linda Allen

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States
646-312-3463 (Phone)
646-312-3451 (Fax)

HOME PAGE: http://stern.nyu.edu/~lallen

Suparna Chakraborty

University of San Francisco ( email )

2130 Fulton Street
San Francisco, CA 94117-1080
United States

HOME PAGE: http://chakrabortys.weebly.com

Sonali Hazarika (Contact Author)

Zicklin School of Business, Department of Economics and Finance, Baruch College - The City University of New York ( email )

17 Lexington Avenue
New York, NY 10010
United States

HOME PAGE: http://https://zicklin.baruch.cuny.edu/faculty-profile/sonali-hazarika/

Chih-Huei (Debby) Su

University of St. Thomas, Houston ( email )

3800 Montrose Blvd.
Houston, TX 77006
United States

HOME PAGE: http://https://www.stthom.edu/Home/Index.aqf

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