Product Network Connectivity and Information for Loan Pricing

32 Pages Posted: 28 Mar 2017 Last revised: 6 Mar 2018

See all articles by Fu Jiangtao

Fu Jiangtao

Waseda University - Graduate School of Economics

Yoshiaki Ogura

Waseda University, Faculty of Political Science and Economics

Date Written: March 27, 2017

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.

Keywords: inter-firm network, loan pricing, information production, relationship banking

JEL Classification: G21, L14

Suggested Citation

Jiangtao, Fu and Ogura, Yoshiaki, Product Network Connectivity and Information for Loan Pricing (March 27, 2017). 30th Australasian Finance and Banking Conference 2017, Available at SSRN: https://ssrn.com/abstract=2941349 or http://dx.doi.org/10.2139/ssrn.2941349

Fu Jiangtao (Contact Author)

Waseda University - Graduate School of Economics ( email )

1-6-1 Nishi-waseda, Shinjuku-ku
Tokyo
Japan

Yoshiaki Ogura

Waseda University, Faculty of Political Science and Economics ( email )

1-6-1 Nishi-waseda, Shinjuku-ku
Tokyo
Japan

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