Peer Information in the Cost of Debt

Abstract

This paper studies the effect of peer information, which banks collected from previous lending to borrowers' competitors, on current loan pricing. I construct a measure of peer information at the bank-firm level and find that firms obtain lower loan rates when borrowing from banks that lent to closer competitors recently. The effect is more pronounced for firms with larger dispersion in analyst forecasts and higher uncertainty in hard information, and reversed when peer information precision is reduced. Overall, the findings suggest that banks learn from lending to peer firms and rely on peer information when information asymmetry is high.