Credit Conditions when Lenders are Commonly Owned

Abstract We investigate how common ownership between lenders affects the terms of syndicated loans. We provide a novel view on the role of common ownership in mitigating information asymmetries on the quality of borrowers and the contractual distortions of lending conditions. Empirically, we show that higher levels of common ownership lower loan spreads, decrease the share of loans retained by the lead bank, and relax liquidity constraints at issuance. We use a novel exclusion restriction based on deposit multimarket contact to identify the effect of common ownership on loan pricing after accounting for its impact on lenders’ participation in the syndicate.