We investigate how common ownership between lenders affects the terms of syndicated loans. We provide a novel view on common ownership between lenders as a mechanism to mitigate the effects of information asymmetry on the quality of borrowers. As the lead bank does not need to signal the quality of the borrower by means of dissipative signals, high common ownership should have a negative impact on loan rates, the share of the loan retained by the lead bank, and the dispersion in loan returns. We empirically verify all three predictions, leveraging the differences in the level of common ownership across lenders and facilities within a loan. Common ownership affects the terms of the loan more strongly in the presence of opaque or new borrowers, when the lead arranger is more likely to hold an information advantage over the syndicate members. As information flows from the lead arranger to syndicate members, we show that member-to-lead and member-to-member common ownership does not affect the terms of syndicated loans.

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