This study highlights the role that external social networks play in a bank loan contract. Using data on Taiwan-listed companies, we find that the social networks of CEO, CFO, and board members help reduce (increase) bank loan spread and liquid collateral requirement (loan size), particularly pronounced for the network to financial institutions. However, the network-loan relation is non-linear with a U-shape effect, suggesting that an over-connected network leads to higher (lower) loan spread and greater collateral requirement (loan size). These facts help resolve controversy of whether a social network is beneficial or detrimental to the firm.
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