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Product market relationships and cost of bank loans: evidence from strategic alliances

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Author Info

  • Fang, Yiwei

    (Lally School of Management and Technology, Rensselaer Polytechnic Institute)

  • Francis , Bill

    (Lally School of Management and Technology, Rensselaer Polytechnic Institute)

  • Hasan , Iftekhar

    ()
    (Lally School of Management and Technology, Rensselaer Polytechnic Institute and Bank of Finland Research)

  • Wang, Haizhi

    (Stuart School of Business. Illinois Institute of Technology)

Abstract

This paper examines the effects of strategic alliances on non-financial firms’ bank loan financing. We construct several measures to capture firms’ alliance activities using the frequency of alliance activities, the prominence of the alliance partner and the relative networking position in the overall alliance network. We find that firms with active alliance involvement experience a lower cost of debt from banks. We also document that allying with a prestigious partner (ie S&P 500 firms) can provide an endorsement effect and benefit the borrowers by reducing the price of bank loans. Moreover, a borrowing firm positioned at the centre of an alliance network enjoys a lower cost of bank loans. Finally, we find that borrowing firms with alliance experience are less likely to use collateral and covenants in their loan contracts.

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Bibliographic Info

Paper provided by Bank of Finland in its series Research Discussion Papers with number 4/2011.

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Length: 42 pages
Date of creation: 15 Mar 2011
Date of revision:
Handle: RePEc:hhs:bofrdp:2011_004

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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Keywords: cost of bank loans; strategic alliances; product market relationships;

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Cited by:
  1. Chou, Ting-Kai & Ou, Chin-Shyh & Tsai, Shu-Huan, 2014. "Value of strategic alliances: Evidence from the bond market," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 42-59.

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