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Product Network Connectivity and Information for Loan Pricing

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  • Jiangtao Fu

    (Graduate School of Economics, Waseda University)

  • Yoshiaki Ogura

    (School of Political Science and Economics, Waseda University)

Abstract

A theory predicts that loan pricing is less sensitive to public information, such as a credit score provided by a credit information vendor, if the lender obtains more accurate private information about the credit quality of borrowers. We find that loan pricing is less sensitive to public information when a borrower is more connected with other borrowers of the lender through a supply network by using a unique database of inter-firm relationships and bank-firm relationships. This effect is significant statistically and economically after controlling for the bank-firm or inter-firm relationship characteristics and other firm characteristics. This finding provides evidence that banks make use of private information observed from their borrowers' network in their loan pricing.Length: 32 pages

Suggested Citation

  • Jiangtao Fu & Yoshiaki Ogura, 2017. "Product Network Connectivity and Information for Loan Pricing," Working Papers 1703, Waseda University, Faculty of Political Science and Economics.
    • Handle: RePEc:wap:wpaper:1703
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    References listed on IDEAS

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    Cited by:

    1. MIYAKAWA Daisuke, 2019. "Shocks to Supply Chain Networks and Firm Dynamics: An Application of Double Machine Learning," Discussion papers 19100, Research Institute of Economy, Trade and Industry (RIETI).
    2. MIYAKAWA Daisuke & MIYAUCHI Yuhei & Christian PEREZ, 2017. "Forecasting Firm Performance with Machine Learning: Evidence from Japanese firm-level data," Discussion papers 17068, Research Institute of Economy, Trade and Industry (RIETI).

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    More about this item

    Keywords

    inter-firm network; loan pricing; information production; relationship banking;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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