Lending When Relationships Are Scarce: The Role of Information Spread via Bank Networks
64 Pages Posted: 19 Oct 2020 Last revised: 14 Mar 2022
Date Written: October 9, 2020
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: Suggested Citation