In this thesis, I study how common ownership between borrowers and their lenders affect debt contracts and loan syndicates. Specifically, I examine the debtholder-shareholder conflict in a unique setting where investors simultaneously hold shares of both the borrowers and lenders. Using inclusion of banks in S&P Indices as an exogenous shock to common ownership, I identify an increase in common ownership which is not driven by market conditions or existing bank-firm relationships. This aids in studying causal impacts of an increase in common ownership of the bank-firm pair on the volume, price and maturity of the loans. I find that a positive shock to common ownership leads to an increase in amounts that banks lend to firms and a decrease in spreads for banks and firms with existing rel...[ Read more ]

In this thesis, I study how common ownership between borrowers and their lenders affect debt contracts and loan syndicates. Specifically, I examine the debtholder-shareholder conflict in a unique setting where investors simultaneously hold shares of both the borrowers and lenders. Using inclusion of banks in S&P Indices as an exogenous shock to common ownership, I identify an increase in common ownership which is not driven by market conditions or existing bank-firm relationships. This aids in studying causal impacts of an increase in common ownership of the bank-firm pair on the volume, price and maturity of the loans. I find that a positive shock to common ownership leads to an increase in amounts that banks lend to firms and a decrease in spreads for banks and firms with existing relationships. Also, the maturity period goes up. I further investigate the modifications of the syndicate structure to suggest if changes in these are caused due to increased ease of monitoring.

JEL classification:D21, G21, G32, L21, L25

Keywords: Common ownership, agency conflicts, debt contract