When shareholders cross-hold lenders’ equity: The effects on the costs of bank loans

Jing Wang and Liying Wang

Journal of Banking & Finance, 2024, vol. 163, issue C

Abstract: We show that syndicated loan spreads are lower as borrowers’ shareholders cross-hold more lenders’ equity. Apart from controlling for borrower and lender fixed effects and various other ownership measures, we address endogeneity concerns by conducting a difference-in-differences analysis exploiting the mergers of institutional investors. Additional tests on cross-holding shareholders’ holding period, the impact of active cross-holders, subsamples of borrowers subject to different degrees of shareholder–creditor conflicts, changes in borrower risk around loan initiation, and the number of financial covenants provide support for the hypothesis that borrower shareholders’ equity holdings of lenders reduce agency costs of debt.

Keywords: Syndicated loans; Equity cross-holdings; Loan spreads; Shareholder–creditor conflicts of interest (search for similar items in EconPapers)
JEL-codes: G20 G32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:163:y:2024:i:c:s0378426624001067

DOI: 10.1016/j.jbankfin.2024.107189

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