Spillover effects in firms' bank choice

In this paper, we study firm‐bank relationship formation. Combining domestic inter‐firm network data from value‐added tax declarations and credit registry for Hungary, we estimate the spillover effects in bank choice, identifying from variation on the bank level. Having at least one peer in the network who has an existing loan with a bank increases the probability that the firm will borrow a new loan from the same bank. We provide suggestive evidence that the estimated spillover effect is due to firm‐to‐firm information transmission about banks. According to our results, firms can learn about banking practices from their peers but they also point to financial stability concerns in the event of shocks to domestic supply chains.