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Networking Behind the Scenes: Institutional Cross-Industry Holdings and Corporate Loan Markets

Author

Listed:
  • Jie (Jack) He

    (Department of Finance, Terry College of Business, University of Georgia, Athens, Georgia 30602)

  • Lantian Liang

    (Department of Finance, University of Sydney Business School, Sydney, New South Wales 2006, Australia)

  • Hui (Grace) Wang

    (Department of Finance, Bentley University, Waltham, Massachusetts 02452)

  • Han Xia

    (Department of Finance and Managerial Economics, Naveen Jindal School of Management, University of Texas at Dallas, Richardson, Texas 75080)

Abstract

Institutional investors increasingly hold firms in both the industrial and financial sectors. These cross-industry holdings link firms to “outside” banks that they have not borrowed from, creating a network between the two sectors. We show that such networks reduce firms’ loan spreads. This effect is more prominent when cross-holders are actively involved in borrowers’ routine operations and when they have stronger incentives to advocate for borrowers in the loan process. Furthermore, outside banks begin to lend more to firms once the two parties become linked. This network is “behind-the-scenes” because it does not arise from prior interactions between firms and banks, but is instead built through institutions’ cross-holdings.

Suggested Citation

  • Jie (Jack) He & Lantian Liang & Hui (Grace) Wang & Han Xia, 2024. "Networking Behind the Scenes: Institutional Cross-Industry Holdings and Corporate Loan Markets," Management Science, INFORMS, vol. 70(7), pages 4932-4952, July.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:7:p:4932-4952
    DOI: 10.1287/mnsc.2023.4911
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