What Drives Banks to Value Lending Relationships? The Role of the Chief Executive's Cultural Heritage

Abstract

We explore how bank CEOs' cultural heritage shapes the nexus between lending relationships and the cost of bank loans in the US syndicated loans market. We show that banks led by CEOs that trace their origin in more individualistic and masculine societies are less inclined to share with their borrowers the savings stemming from strong lending relationships. In contrast, banks led by CEOs that originate from societies where uncertainty avoidance and power distance are higher, exhibit a stronger propensity to reward their relationship borrowers with lower loan prices. These findings are consistent with the view that certain cultural attributes affect the degree to which relationships are valued in the societal and business contexts. Our study highlights the importance of considering lenders' culture when investigating the effects of lending relationships on the cost of bank loans.