Lending When Relationships Are Scarce: The Role of Information Spread via Bank Networks

64 Pages Posted: 19 Oct 2020 Last revised: 14 Mar 2022

See all articles by Yan Alperovych

Yan Alperovych

emlyon business school

Anantha Divakaruni

University of Bergen

Sophie Manigart

Vlerick Business School; Ghent University

Date Written: October 9, 2020

Abstract

We investigate how information flows within bank networks facilitate syndicate formation and lending in the leveraged buyout (LBO) market, where relationships between banks and borrowers are scarce and borrower opacity is high. Using novel measures that characterize a bank’s ability to source and disseminate information within its loan syndication network, we show that the extent of this capability influences which banks join the syndicate, the share the lead bank holds, and LBO borrowing terms. Banks’ ability to source and disseminate network-based information is particularly useful when ties to prospective borrowers are lacking, with the information flows extending beyond knowledge on PE firms and LBO targets.

Keywords: Networks; Syndication; Lending; Information; Private Equity; Leveraged Buyouts

JEL Classification: D82, G20, G21, G23, G24, L14

Suggested Citation

Alperovych, Yan and Divakaruni, Anantha and Manigart, Sophie, Lending When Relationships Are Scarce: The Role of Information Spread via Bank Networks (October 9, 2020). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3708132 or http://dx.doi.org/10.2139/ssrn.3708132

Yan Alperovych

emlyon business school ( email )

23 Avenue Guy de Collongue
Écully, 69130
France

Anantha Divakaruni (Contact Author)

University of Bergen ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway

Sophie Manigart

Vlerick Business School ( email )

Reep 1
Ghent, BE-9000
Belgium

Ghent University ( email )

Sint-Pietersplein 7
Gent, 9000
Belgium

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