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Relationship Lending, Accounting Disclosure, and Credit Availability during the Asian Financial Crisis

Authors


  • The views expressed here are those of the authors and do not necessarily reflect the views of the Federal Deposit Insurance Corporation. We appreciate the comments of Rosalind Bennett, Ralf Elsas, Mark Flannery, Reint Gropp, Robert Hauswald, Paul Kupiec, Dan Nuxoll, John O'Keefe, Jack Reidhill, Katherine Samolyk, the two anonymous referees, and participants in workshops or seminars at the following venues: the FDIC; American University; the 2004 workshop hosted jointly by the Basel Committee on Banking Supervision, the Centre for Economic Policy Research (CEPR), and the Journal of Financial Intermediation; the 2004 meetings of the Western Economics Association, the Financial Management Association, and the Southern Finance Association; and the 2005 Federal Reserve Bank of Chicago Bank Structure and Competition meeting. Sarah Junker provided research assistance. All errors are our own.

Abstract

We examine whether lending relationships benefit firms by making credit more available during periods of financial stress. Our main finding is that during the Asian financial crisis of July 1997 through the end of 1998, relationship lending increased the likelihood that Korean and Thai firms would obtain credit but it had no effect on Indonesian and Philippine firms. We ask if accounting disclosure might explain the observed differences among the three countries for which audit information is available. We find that for Indonesian firms with weak lending relationships, banks replace relationship lending technology with a financial-statement lending technology. Such a result does not hold for Korean and Philippine firms.

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