Information from Relationship Lending: Evidence from Loan Defaults in China
Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)
Central University of Finance and Economics - School of Accountancy
Indiana University - Kelley School of Business - Department of Finance; China Academy of Financial Research (CAFR)
Renmin University of China - Hanqing Advanced Institute of Economics and Finance
June 24, 2013
Journal of Money, Credit, and Banking, Forthcoming
European Banking Center Discussion Paper No. 2009-10S
CentER Discussion Paper Series No. 2009-39S
Using a proprietary database from a large Chinese state-owned bank, we examine whether information evolved from banking relationships predicts commercial loan default by industrial firms. We find that the bank’s relationship information is significantly linked to the incidence of default, and that its contribution to prediction accuracy is larger than any hard information. Furthermore, the effect of relationship information is stronger among firms that have a more sustained banking relationship. Our findings indicate that, at least in the emerging markets, a bank’s relationship information still matters for large firms, despite that fact that hard information for such firms is abundant.
Number of Pages in PDF File: 86
Keywords: Debt default, internal credit ratings, credit risk, relationship lending, soft information
JEL Classification: G21, D81, D82, D83, F34
Date posted: March 15, 2009 ; Last revised: May 14, 2014
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