Review of Financial Studies 2026
How Private Equity Fuels Nonbank Lending
open access
Abstract
We demonstrate how private equity (PE) promotes nonbank lending by substituting for bank monitoring. Relative to non-PE-backed loans, PE-backed loans exhibit lower bank monitoring, smaller loan shares retained by lead banks, and larger shares held by nonbanks. The substitution is strongest when sponsors have greater incentives to engage with portfolio firms, is not associated with weaker loan performance, and persists during borrower distress. Our findings suggest that PE sponsors’ active engagement—through monitoring and support in distress—reduces banks’ need for monitoring and information production, enabling them to retain less skin in the game and sell loans to nonbanks.
- DOI
- 10.1093/rfs/hhag092
- Language
- en
- Sources
- crossref openalex