Lending Relationships, Credit Availability, Firm Value and Banking Crises
Bo Sung Shin
Korea Securities Research Institute
Gregory F. Udell
Indiana University Bloomington - Department of Finance
Sang Yong Park
March 3, 2008
We examine whether lending relationships enhance credit availability during banking crises when a bank's willingness to lend is weakest. Using a unique sample of listed firms in Korea we find that during the Asian financial crisis firms with closer banking relationships benefited from greater access to credit even from their undercapitalized banks. This finding persists even after controlling for "evergreening" behavior by undercapitalized banks. We also find that firms with closer banking relationship experienced smaller decrease in their firm values than those with weaker banking relationships. This casts doubt on the view that a shock to a closely-tied bank hurts its relationship borrowers relatively more badly and that firms thus ought to borrow from as many banks as possible.
Number of Pages in PDF File: 41
JEL Classification: lending relationship, credit availability, banking crisisworking papers series
Date posted: March 8, 2008
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