Does it pay to get connected? An examination of bank alliance network and bond spread

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Title: Does it pay to get connected? An examination of bank alliance network and bond spread
Author: Hasan, Iftekhar ; Meslier, Céline ; Tarazi, Amine ; Zhou, Mingming
Series: Journal of Economics and Business
Series volume: 95
Series number: January-February
Year of publication: 2018
Publication date: 8.1.2018
Page range: 141-163
Subject (yso): joukkovelkakirjat; pankit; verkostot
Keywords: Eurooppa
JEL: D74; G12; G14; G21; G32; G34
Other keywords: Alliance; Network; Bond spread; European banks
Abstract: This paper examines the effects of bank alliance network on bonds issued by European banks during the period 1990–2009. We construct six measures capturing different dimensions of banks’ network characteristics. In opposition to the results obtained for non-financial firms, our findings indicate that being part of a network does not create value for bank’s bondholders, indicating a dark side effect of strategic alliances in the banking sector. While being part of a network is perceived as a risk-increasing event by market participants, this negative perception is significantly lower for the larger banks, and, to a lesser extent, for the more profitable banks. Moreover, during crisis times, the positive impact on bond spread of a bank’s higher centrality or of a bank’s higher connectedness in the network is stronger, indicating that market participants may fear spillover effects within the network during periods of banks’ heightened financial fragility.

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