Product Network Connectivity and Information for Loan Pricing

Jiangtao Fu () and Yoshiaki Ogura ()
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Jiangtao Fu: Graduate School of Economics, Waseda University
Yoshiaki Ogura: School of Political Science and Economics, Waseda University

No 1703, Working Papers from Waseda University, Faculty of Political Science and Economics

Abstract: A theory predicts that loan pricing is less sensitive to public information, such as a credit score provided by a credit information vendor, if the lender obtains more accurate private information about the credit quality of borrowers. We find that loan pricing is less sensitive to public information when a borrower is more connected with other borrowers of the lender through a supply network by using a unique database of inter-firm relationships and bank-firm relationships. This effect is significant statistically and economically after controlling for the bank-firm or inter-firm relationship characteristics and other firm characteristics. This finding provides evidence that banks make use of private information observed from their borrowers' network in their loan pricing.Length: 32 pages

Keywords: inter-firm network; loan pricing; information production; relationship banking (search for similar items in EconPapers)
JEL-codes: G21 L14 (search for similar items in EconPapers)
Date: 2017-05
New Economics Papers: this item is included in nep-ban and nep-net
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Citations: View citations in EconPapers (2)

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