Cross-Company Effects of Common Ownership: Dealings between Borrowers and Lenders with a Common Blockholder

Abstract

We study the effects of common ownership on syndicated loan market interactions. We find that borrowers and lenders that are commonly held by an institutional blockholder tended to do more business together going forward than those that are not commonly held. We hypothesize that the increased likelihood of striking a deal derives from conversations between borrowers and blockholders about financing plans, which, in turn, increases borrowers’ familiarity and perhaps opinion of commonly owned lenders. Consistent with this view, we find that the increase in dealings occurred only when the blockholder followed an active rather than a passive investment strategy.

Keywords: cross-ownership, institutional ownership, active investment, credit market interactions, syndicated lending

JEL Classification: D22, G21, G23, G30