Financial Institutions Network and the Certification Value of Bank Loans

What is it about?

Social networks play an important role in finance, especially for bank lending. We investigate the effect of the network of financial institutions on the value of bank loans. We use data on large loans to European companies. We find that the presence of more central and reputable lenders increases the stock market's reaction to loan announcements.

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Why is it important?

These results are important for the development of credit markets. Borrowers can gain by working with reputable and central lenders, whereas the latter should care about their reputation and social capital, notably by maintaining and developing valuable interactions, reciprocity, and trust. Furthermore, these findings are even more important regarding the European credit market, which is the main channel for the external funding of companies.