Networking Behind the Scenes: Institutional Cross-Industry Holdings and Corporate Loan Markets

Jie (Jack) He (), Lantian Liang (), Hui (Grace) Wang () and Han Xia ()
Additional contact information
Jie (Jack) He: Department of Finance, Terry College of Business, University of Georgia, Athens, Georgia 30602
Lantian Liang: Department of Finance, University of Sydney Business School, Sydney, New South Wales 2006, Australia
Hui (Grace) Wang: Department of Finance, Bentley University, Waltham, Massachusetts 02452
Han Xia: Department of Finance and Managerial Economics, Naveen Jindal School of Management, University of Texas at Dallas, Richardson, Texas 75080

Management Science, 2024, vol. 70, issue 7, 4932-4952

Abstract: Institutional investors increasingly hold firms in both the industrial and financial sectors. These cross-industry holdings link firms to “outside” banks that they have not borrowed from, creating a network between the two sectors. We show that such networks reduce firms’ loan spreads. This effect is more prominent when cross-holders are actively involved in borrowers’ routine operations and when they have stronger incentives to advocate for borrowers in the loan process. Furthermore, outside banks begin to lend more to firms once the two parties become linked. This network is “behind-the-scenes” because it does not arise from prior interactions between firms and banks, but is instead built through institutions’ cross-holdings.

Keywords: cost of loans; institutional cross-industry holdings; hold-up problem; dual presence; institution mergers (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2023.4911 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:7:p:4932-4952

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().