Financial Institutions Network and the Certification Value of Bank Loans
We are very grateful to the editor and an anonymous referee for valuable suggestions, and to Kentaro Asai, Patrick McColgan, Andreea Piloiu, and Tomas Vyrost for helpful comments, as well as to participants at the 2015 French Finance Association (Cergy), 2015 International Finance INFINITI (Ljubljana), 2015 Financial Management Association (Venice), and 2015 European Financial Management Association (Breukelen) conferences for insightful discussions. The usual disclaimer applies.
Abstract
Social networks play an important role in mitigating informational frictions related to financial intermediation, especially bank lending. We investigate the effect of the network of financial institutions on the certification value of bank loans using data on syndicated loans to European companies. We find that the presence of more central leaders in a syndicate substantially increases the stock market's reaction to loan announcements. This certification value is reinforced when informational frictions are more important but vanishes when there are severe disruptions in the functioning of financial markets, such as during the financial crisis of 2008.
