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

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  • Wang, Jing
  • Wang, Liying

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.

Suggested Citation

  • Wang, Jing & Wang, Liying, 2024. "When shareholders cross-hold lenders’ equity: The effects on the costs of bank loans," Journal of Banking & Finance, Elsevier, vol. 163(C).
    • Handle: RePEc:eee:jbfina:v:163:y:2024:i:c:s0378426624001067
    DOI: 10.1016/j.jbankfin.2024.107189
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    Keywords

    Syndicated loans; Equity cross-holdings; Loan spreads; Shareholder–creditor conflicts of interest;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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