Banks as information specialists: The case of hospital lending

This study analyzes data from the US hospital industry for evidence that banks enjoy informational advantages over direct lenders. In a multivariate analysis, we find a strong positive relationship between bank loans (as a share of total borrowing) and profitability among hospitals widely perceived as financially weak. Thus, among such hospitals, reliance on bank loans suggests the presence of hidden factors that enhance the hospital's financial standing. This supports the view that financial intermediaries are information specialists.