Borrower Technology Similarity and Bank Loan Contracting

Abstract

Do banks accumulate knowledge about corporate technology, and does it matter for their lending? To answer this question, we combine corporate innovation with syndicated loan data. We find that loans to firms sharing similar technologies with banks’ prior borrowers obtain lower loan spreads. We can rule out product market competition, the value of their technology and ability to innovate, and/or numerous other firm characteristics as alternative explanations. By exploiting the adoption of intellectual property protection laws and the consummation of bank mergers and acquisitions, we can show that shocks to banks’ technology knowledge causally affect loan spreads.

Keywords: technology similarity, loan contracting, matching model, relationship lending

JEL Classification: G21, G32, O33