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Friends with money

Author

Listed:
  • Engelberg, Joseph
  • Gao, Pengjie
  • Parsons, Christopher A.

Abstract

When banks and firms are connected through interpersonal linkages – such as their respective management having attended college or previously worked together – interest rates are markedly reduced, comparable with single shifts in credit ratings. These rate concessions do not appear to reflect sweetheart deals. Subsequent firm performance, such as future credit ratings or stock returns, improves following a connected deal, suggesting that social networks lead to either better information flow or better monitoring.

Suggested Citation

  • Engelberg, Joseph & Gao, Pengjie & Parsons, Christopher A., 2012. "Friends with money," Journal of Financial Economics, Elsevier, vol. 103(1), pages 169-188.
    • Handle: RePEc:eee:jfinec:v:103:y:2012:i:1:p:169-188
    DOI: 10.1016/j.jfineco.2011.08.003
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    References listed on IDEAS

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    More about this item

    Keywords

    Asymmetric information; Bank lending; Cost of debt; Social connections; Lending outcomes;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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