Lending Diversification and Interconnectedness of the Syndicated Loan Market

Abstract

We investigate the effects of syndicated loan network centrality on bank performance. Syndicated loan network centrality measures the similarity and influence of the other banks within a given banks network. The network centrality constructed by syndicated loans can allow banks to gather and transfer valuable information and can thus facilitate profit-making acquisition in loan investment decisions. We use a planar maximally filtered graph to construct an interbank network using syndicated loan portfolios at the industry level. We show that the syndicated loan portfolios of high-centrality banks exhibit a higher level of portfolio diversification than those of low-centrality banks. We also document that our composite centrality measure of the bank network showed statistical significance in terms of bank performance even after controlling for the financial variables of market size, loan allocation, total asset, and loan diversification. Our findings suggest that the performance of a bank in a syndicated loan hierarchy is related to its position in this hierarchy.

The core of board networks and firm value

“…Third, our CCI calculated by board networks has a statistically positive impact on the firm value measured by Tobin's q at the 1% level. (This is consistent with the influence of bank networks with [7]. These results imply that the connectedness between firms based on a physical relationship, such as interlocking directorates and overlapping portfolios, could be a measure of power in board networks.…”

“…Due to the positive correlations between degree, EC, and BC in Table 3 for the regression, we calculate the CCI. We standardize the board-level centrality scores to have a mean of 0 and standard deviation of 1 and then combine these three measures to reduce the dimensionality of the variables using principal component analysis [7,30]. In Table 4, we report the descriptive statistics of the centrality measures and the CCI for board members.…”