Financial Institutions Network and the Certification Value of Bank Loans

My article published in Financial Management and co-authored with Bulat Sanditov (Telecom Ecole de Management) is now available online (Early View)!

Link to article on the journal website

Link to read-only copy

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.

 

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