Strategic Alliances and Lending Relationships

We provide new insights on the value of strategic alliances from a debt financing perspective. We find that firms entering a strategic alliance receive a lower interest spread when they borrow from banks that have previously lent to their strategic partners, compared to loans from other banks. Importantly, this effect varies with the information and accounting environments of borrowing firms. The effect is stronger when a borrower’s transparency and accounting quality is low. We also find that strategic alliances lead borrowers to receive non-price loan term benefits in the form of larger loan amounts and less concentrated loan syndicates. Last, in addition to obtaining more favorable loan terms when dealing with alliance-related banks, we document that borrowers have a higher likelihood of obtaining debt financing from alliance-related banks than from other banks, evidence that strategic alliances are another channel through which lending relationships are formed.