Article | Journal of Financial Economics | 2012

Friends with Money

by Christopher Parsons, J. Engelberg and P. Gao

Abstract

When banks and firms are connected through interpersonal linkages—such as their respective management having attended college or previously worked together—interest rates are markedly reduced, comparable with single shifts in credit ratings. These rate concessions do not appear to reflect sweetheart deals. Subsequent firm performance, such as future credit ratings or stock returns, improves following a connected deal, suggesting that social networks lead to either better information flow or better monitoring.

Keywords: Social and Collaborative Networks; Interest Rates; Banking Industry;

Citation:

Parsons, Christopher, J. Engelberg, and P. Gao. "Friends with Money." Journal of Financial Economics 103, no. 1 (January 2012): 169–188.