Overlapping board connections with banker directors and corporate loan terms: Evidence from syndicated loans

Abstract

I look at the relationship between corporate loan terms and board members' connections to bankers through employment on other boards, a connection relatively unaffected by confounding factors. Using syndicated loan data, I find that firms connected to bankers via other boards are more likely to borrow, and they receive cheaper pricing. However, loan maturity does not differ between connected and unconnected firms. During the 2007-2008 financial crisis loan availability declined for all firms, but connected firms continued to borrow and to receive lower spreads. Generally, my results support the importance of social connections in decreasing information asymmetry and reducing transaction costs.