Networking Behind the Scenes: Institutional Cross-industry Holdings and Corporate Loan Markets

61 Pages Posted: 26 Nov 2019 Last revised: 8 Jan 2024

See all articles by Jie He

Jie He

University of Georgia - Department of Finance

Lantian Liang

The University of Sydney - Discipline of Finance

Hui Wang

Bentley University - Department of Finance

Han Xia

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: March 15, 2023

Abstract

Institutional investors increasingly hold firms in both the industrial and financial sectors. These cross-industry holdings link firms to “outside” banks that they have not borrowed from, creating a network between the two sectors. We show that such networks reduce firms’ loan spreads. This effect is more prominent when cross-holders are actively involved in borrowers’ routine operations, and when they have stronger incentives to advocate for borrowers in the loan process. Further, outside banks begin to lend more to firms once the two parties become linked. This network is “behind-the-scenes” because it does not arise from prior interactions between firms and banks, but is instead built through institutions’ cross-holdings.

Keywords: cost of loans, institutional cross-industry holdings, hold-up problem, dual presence, institution mergers

Suggested Citation

He, Jie and Liang, Lantian and Wang, Hui and Xia, Han, Networking Behind the Scenes: Institutional Cross-industry Holdings and Corporate Loan Markets (March 15, 2023). Available at SSRN: https://ssrn.com/abstract=3486597 or http://dx.doi.org/10.2139/ssrn.3486597

Jie He

University of Georgia - Department of Finance ( email )

B318 Amos Hall
Terry College of Business, University of Georgia
Athens, GA 30602-6253
United States

Lantian Liang

The University of Sydney - Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Hui Wang

Bentley University - Department of Finance ( email )

175 Forest St
Waltham, MA 02452
United States

Han Xia (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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