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Borrower Technology Similarity and Bank Loan Contracting

Author

Listed:
  • Mingze Gao

    (University of Sydney)

  • Yunying Huang

    (University of Sydney)

  • Steven Ongena

    (University of Zurich; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR))

  • Eliza Wu

    (University of Sydney)

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 exploiting the adoption of intellectual property protection laws and the consummation of bank mergers and acquisitions, we can show that shocks to banks’ technology knowledge causally affect loan spreads.

Suggested Citation

  • Mingze Gao & Yunying Huang & Steven Ongena & Eliza Wu, 2023. "Borrower Technology Similarity and Bank Loan Contracting," Swiss Finance Institute Research Paper Series 23-84, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2384
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    Keywords

    technology similarity; loan contracting; matching model; relationship lending;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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