Working Paper BETA #2010-16

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Title : Bank lending networks, experience, reputation, and borrowing costs.

Author(s) : Christophe J. Godlewski, Bulat Sanditov, Thierry Burger-Helmchen

Abstract : We investigate the network structure of syndicated lending markets and evaluate the impact of lenders’ network centrality, considered as measures of their experience and reputation, on borrowing costs. We show that the market for syndicated loans is a “small world” characterized by large local density and short social distances between lenders. Such a network structure allows for better information and resources flows between banks thus enhancing their social capital. We then show that lenders’ experience and reputation play a significant role in reducing loan spreads and thus increasing borrower’s wealth.

Key-words : agency costs, bank syndicate, experience, loan syndication, reputation, small world, social network analysis.

JEL Classification : G21, G24, L14.