Bank Lending Networks, Experience, Reputation, and Borrowing Costs: Empirical Evidence from the French Syndicated Lending Market

Authors

  • Christophe J. Godlewski,

  • Bulat Sanditov,

  • Thierry Burger-Helmchen

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    • The first author is from the University of Haute Alsace & EM Strasbourg Business School (LaRGE Research Center). The second author is from UNU-MERIT, Maastricht University & University of Strasbourg (BETA Research Center). The third author is from EM Strasbourg Business School, University of Strasbourg (BETA Research Center). They thank Andrew Stark (editor), an anonymous referee, Iftekhar Hasan, Koen Schoors, Armin Schwienbacher, Ming Ming Zhou, and participants of the French Finance Association (AFFI) Meeting 2011 Montpellier, the BOFIT Seminar at the Bank of Finland, 8th ENEF Meeting in Strasbourg and ECIS workshop at Eindhoven University of Technology for helpful comments. Bulat Sanditov acknowledges financial support from the AnCoRA project funded by ANR (ANR 06 APPR 003). The usual disclaimer applies. (Paper received November 2010, revised version accepted October 2011)


Christophe J. Godlewski, University of Haute Alsace & EM Strasbourg Business School (LaRGE Research Center), PEGE-LaRGE, 61 avenue de la Forêt Noire, 67000 Strasbourg, France. e-mail: godlewski@em-strasbourg.eu

Abstract

Abstract:  We investigate the network structure of bank lending markets and evaluate the impact of lenders' network centrality, considered a measure of their experience and reputation, on borrowing costs. We show that the French market for syndicated bank loans is a ‘small world’ characterized by large local density and short social distances between lenders. Such a network structure allows for better information and resources flows between banks thus enhancing their social captial. We then show that lenders' experience and reputation play a significant role in reducing loan spreads and thus increasing borrower's wealth.

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