Research Discussion Papers, Bank of Finland
No 4/2011:
Product market relationships and cost of bank loans: evidence from strategic alliances
Yiwei Fang, Bill Francis, Iftekhar Hasan ()
and Haizhi Wang
Abstract: This paper examines the effects of strategic alliances on
non-financial firms’ bank loan financing. We construct several measures to
capture firms’ alliance activities using the frequency of alliance
activities, the prominence of the alliance partner and the relative
networking position in the overall alliance network. We find that firms
with active alliance involvement experience a lower cost of debt from
banks. We also document that allying with a prestigious partner (ie S&P 500
firms) can provide an endorsement effect and benefit the borrowers by
reducing the price of bank loans. Moreover, a borrowing firm positioned at
the centre of an alliance network enjoys a lower cost of bank loans.
Finally, we find that borrowing firms with alliance experience are less
likely to use collateral and covenants in their loan contracts.
Keywords: cost of bank loans; strategic alliances; product market relationships; (follow links to similar papers)
JEL-Codes: D82; D85; G21; G30; (follow links to similar papers)
42 pages, March 15, 2011
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