Losing my connection: The role of interlocking directorates

The paper examines the causal impact of bank-firm interlocking directorates on a firm’s access to credit. We exploit matched bank-firm panel data containing information on the firms' loans and on the governing bodies of both the banks and the firms. To identify the connection premium, we adopt a difference-in-differences strategy and exploit the exogenous break of connection that occurs when the bank is placed under special administration and its board members are removed. Specifically, we focus on banks that were placed under special administration and compare the loans of firms that lost the connection with those of the unconnected firms, chosen through propensity score matching among borrowers from the same banks. We find that the loss of connection is associated with a significant and large drop in the firms' granted loans, and in particular, in the credit lines that can be unilaterally modified by the lender in the short term. We also show that the advantages of the connection are mainly due to favouritism behaviours, rather than to privileged information flows.