Prestige and Loan Pricing
Using unique survey data, we show that prestigious companies face lower costs of borrowing despite the fact that prestige does not predict credit risk. The results are robust to matched sample analyses and a regression discontinuity design. We also show that there is more competition for prestigious companies and that the effect of prestige on upfront fees is stronger for new lending relationships. Furthermore, banks that lend to prestigious companies increase lending afterwards. Our findings uncover a novel channel of banks establishing lending relationships with prestigious companies in order to signal their quality and attract future business.