Networks and information in credit markets

Abhimanyu Gupta, Sotirios Kokas, Alexander Michaelides and Raoul Minetti

Journal of Corporate Finance, 2025, vol. 94, issue C

Abstract: A large literature emphasizes financial networks, but understanding how these networks influence lending decisions over the business cycle remains challenging. We exploit the overlapping bank portfolio structure of US syndicated loans to construct a financial network. Using techniques from spatial econometrics, we document large spillovers in lending conditions during good times, driven by commonality in banks’ loan portfolio exposures. A standard deviation increase in peers’ lending rates is associated with an increase in a bank’s lending rate of 17 basis points. However, these spillovers vanish in a large recession. We interpret these findings through a syndicate lending model where information spillovers driven by loan portfolio commonality dilute banks’ incentives to produce private information on borrowers during good times.

Keywords: Financial networks; Spillovers; Cost of lending; Syndicated loan market (search for similar items in EconPapers)
JEL-codes: C31 G21 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:94:y:2025:i:c:s0929119925001087

DOI: 10.1016/j.jcorpfin.2025.102840

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