Lending when relationships are scarce: The role of information spread via bank networks

We investigate how information flows within bank networks facilitate syndicate formation and lending in the leveraged buyout (LBO) market, where relationships between banks and borrowers are scarce and borrower opacity is high. Using novel measures that characterize a bank's ability to source a...

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Bibliographic Details
Published in:Journal of corporate finance (Amsterdam, Netherlands) Netherlands), 2022-04, Vol.73, p.102181, Article 102181
Main Authors: Alperovych, Yan, Divakaruni, Anantha, Manigart, Sophie
Format: Article
Language:English
Subjects:
Business administration
Economics and Finance
Humanities and Social Sciences
Information
Lending
Leveraged buyouts
Networks
Private equity
Syndication
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Summary:We investigate how information flows within bank networks facilitate syndicate formation and lending in the leveraged buyout (LBO) market, where relationships between banks and borrowers are scarce and borrower opacity is high. Using novel measures that characterize a bank's ability to source and disseminate information within its loan syndication network, we show that the extent of this capability influences which banks join the syndicate, the share the lead bank holds, and LBO borrowing terms. Banks' ability to source and disseminate network-based information is particularly useful when ties to prospective borrowers are lacking, with the information flows extending beyond knowledge on PE firms and LBO targets.
ISSN:0929-1199
1872-6313
DOI:10.1016/j.jcorpfin.2022.102181