The Informational Role of Ownership Networks in Bank Lending

Journal of Financial and Quantitative Analysis, forthcoming

52 Pages Posted: 17 Jul 2018 Last revised: 20 Apr 2021

See all articles by Haoyu Gao

Haoyu Gao

Renmin University of China

Hong Ru

Nanyang Business School, Nanyang Technological University

Xiaoguang Yang

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Science

Date Written: April 16, 2021

Abstract

This paper documents novel large-sample evidence on the informational role of interfirm ownership networks in bank lending. Using comprehensive loan-level data in China, we find that banks’ internal loan ratings at issuance predict subsequent delinquent events more accurately when borrowers are connected to banks’ existing customers via ownership networks. In post-issuance monitoring for delinquent loans, banks with access to ownership networks manage to downgrade their initial ratings before late payments. These findings suggest that ownership networks facilitate the transmission of private information for bank lending. Moreover, ownership networks are more important for transmitting information related to small and medium enterprises.

Keywords: Network, Information, Bank Loan, Screening, Monitoring

JEL Classification: G21, G28, G32, L51

Suggested Citation

Gao, Haoyu and Ru, Hong and Yang, Xiaoguang, The Informational Role of Ownership Networks in Bank Lending (April 16, 2021). Journal of Financial and Quantitative Analysis, forthcoming , Available at SSRN: https://ssrn.com/abstract=3195616 or http://dx.doi.org/10.2139/ssrn.3195616

Haoyu Gao

Renmin University of China ( email )

Mingde main building
Haidian district, No. 59,
Beijing, Beijing 100872
China

Hong Ru (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore
(+65) 67904661 (Phone)

HOME PAGE: http://https://hongru.mit.edu/

Xiaoguang Yang

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Science ( email )

Beijing
China

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