Two interesting recent empirical papers address the issue of information leakage from private lenders that affects securities trading and takeovers. Private lenders receive confidential information about their borrowers as part of their lending activities. These papers document channels through which this private information leaks into securities markets and the market for corporate control.
One paper, Institutional Investors and Loan Market Information Spillover, by Victoria Ivashina (HBS) and Zheng Sun (Stern), marshalls evidence that private lenders also trade on this information, though not in the securities of the borrower but in the securities of firms in the same industry, or firms whose earnings or stock returns highly correlate with those of the borrower. Institutional investors who buy commercial loans do better in the stock market than those who don't.
The second paper, Bank Debt and Corporate Governance, by Victoria Ivashina, Vinay Nair (Wharton), Anthony Saunders (Stern), Nadia Massoud (York), and Roger Stover (Iowa State), finds evidence that banks facilitate takeovers by producing information as part of their lending activities and then transmitting this information to potential acquirers. In particular, (a) greater bank lending "intensity" for a firm (as measured by the number, amount, and maturity of loans by a bank to a borrower, among other things) improves the likelihood that the firm will be the target of a takeover bid; (b) a firm with lending relationships with banks that have more clients in the same industry are more likely to receive a takeover bid; (c) the bank lending intensity effect is stronger where the target and acquirer have a relationship with the same bank; and (d) potential acquirers who switch to a new relationship bank are more likely to bid for other clients of the new bank.
Interesting stuff!
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