Stay Connected, Stay Financed: Evidence from Global Network of Air Links and Syndicated Loans

"This paper examines how long-distance air links over the globe affect syndicated loan contracts, particularly their pricing (interest spread). We find that a city’s centrality in the global air-link network facilitates financing through syndicated loans. Borrowers in this city are likely to obtain syndicated loans with lower interest spreads, fewer lead lenders, a more diversified lending structure, fewer loan amendments, more flexible covenants, and lower fees. The negative effect of air-link centrality on loan spreads is weaker with higher information transparency and a developed credit market. The results support the monitoring hypothesis on the impact of proximity in credit markets. We employ a regression discontinuity (RD) approach based on the discontinuity of long-distance air links around 6,000 miles to identify causality. We conduct placebo tests using cargo flights and find no significant impact on syndicated loans, which suggests that the effect of air links on syndicated loans is through easy transportation of
people rather than products."