Working Paper: CEPR ID: DP18624
Authors: Mingze Gao; Yunying Huang; Steven Ongena; Eliza Wu
Abstract: Do banks accumulate knowledge about corporate technology, and does it matter for their lending? To answer this question, we combine corporate innovation with syndicated loan data. We find that loans to firms sharing similar technologies with banks’ prior borrowers obtain lower loan spreads. We can rule out product market competition,the value of their technology and ability to innovate, and/or numerous other firm characteristics as alternative explanations. By estimating a structural bank-borrower matching model and exploiting the consummation of bank mergers and acquisitions, we can show that shocks to banks’ technology knowledge causally affect loan spreads.
Keywords: Technology similarity; Loan contracting; Matching model; Relationship lending
JEL Codes: G21; G32; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Borrower technology similarity (G51) | Loan spreads (G51) |
| Higher technology similarity (O33) | Absolute difference in creditworthiness measures (G51) |
| Technology similarity (L15) | Screening and monitoring costs (I11) |