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Firm commonality, bank connectedness and portfolio riskiness

Author

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  • Topalog̃lu Bozkurt, Ayça
  • Özyıldırım, Süheyla

Abstract

We propose a new connectedness measure that addresses heterogeneous multiple borrowing loan structure among banks. Using confidential data from over 44 million commercial loans from Turkish banks during 2007–2016, we construct a bank network that emerges from the banks lending to common firms. While the related literature mostly focuses on systemic risk, our framework allows us to empirically study banks’ loan portfolio riskiness. First, we document that banks’ portfolio riskiness decreases with connectedness, even when controlling for the impacts of loan size and multiple borrowing. Second, we find that the probability of loan default is higher for highly connected banks compared to weakly connected ones. These findings suggest that highly centralized banks seem to manage their overall portfolio risk better.

Suggested Citation

  • Topalog̃lu Bozkurt, Ayça & Özyıldırım, Süheyla, 2025. "Firm commonality, bank connectedness and portfolio riskiness," International Review of Economics & Finance, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:reveco:v:97:y:2025:i:c:s105905602400738x
    DOI: 10.1016/j.iref.2024.103746
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    More about this item

    Keywords

    Bank-loan network; Bipartite network; Degree centrality; Loan portfolio riskiness; Common borrowers;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G01 - Financial Economics - - General - - - Financial Crises

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