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Financial institution network and the certification value of bank loans

Listed author(s):
  • Christophe J. GODLEWSKI

    ()

    (LaRGE Research Center, Université de Strasbourg)

  • Bulat SANDITOV

    (Telecom Ecole de Management)

Social networks and reputation are believed to play important roles in mitigating informational frictions related to financial intermediation, in particular bank lending. We investigate the effect of the network and reputation of financial institutions on the certification value of bank loans using data on syndicated loans to European companies. We find that the presence of more central and reputable leaders in a syndicate substantially increases the stock market’s reaction to loan announcements. This certification value is reinforced when informational frictions are more important, but vanishes in case of severe disruptions in the functioning of financial markets, such as during the financial crisis of 2008.

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Paper provided by Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg in its series Working Papers of LaRGE Research Center with number 2015-02.

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Date of creation: 2015
Handle: RePEc:lar:wpaper:2015-02
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