TY  - UNPD
A1  - Haselmann, Rainer
A1  - Leuz, Christian
A1  - Schreiber, Sebastian
T1  - Know your customer: relationship lending and bank trading
T2  - LawFin working paper ; No. 22
N2  - In this study, we analyze the trading behavior of banks with lending relationships. We combine detailed German data on banks’ proprietary trading and market making with lending information from the credit register and then examine how banks trade stocks of their borrowers around important corporate events. We find that banks trade more frequently and also profitably ahead of events when they are the main lender (or relationship bank) for the borrower. Specifically, we show that relationship banks are more likely to build up positive (negative) trading positions in the two weeks before positive (negative) news events, and also that they unwind these positions shortly after the event. This trading pattern is more pronounced for unscheduled earnings events, M&A transactions, and after borrower obtain new bank loans. Our results suggest that lending relationships endow banks with important information, highlighting the potential for conflicts of interest in banking, which has been a prominent concern in the regulatory debate.
T3  - LawFin Working Paper - 22 
Y1  - 2021
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/61662
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-616620
IS  - August 2021
EP  - 48
PB  - Center for Advanced Studies on the Foundations of Law and Finance, House of Finance, Goethe University
CY  - Frankfurt am Main
ER  -