Abstract

http://ssrn.com/abstract=1427330
 
 

References (81)



 
 

Citations (5)



 


 



What's Bank Reputation Worth? The Effect of Fraud on Financial Contracts and Investment


Huidan Lin


International Monetary Fund

Daniel Paravisini


London School of Economics & Political Science (LSE); Columbia Business School - Finance and Economics

June 1, 2011


Abstract:     
The risk of a reputation loss can provide an informal enforcement mechanism when contracts are incomplete. This paper provides evidence that reputation and formal incentives to monitor are substitutes in the context of syndicated credit. Monitoring in a loan syndicate is delegated to lead banks, whose formal incentives are determined by their share of the loan. Exploiting as a source of variation the reputation loss suffered by banks actively lending to firms subsequently involved in fraud scandals, we use within-firm estimators to show that monitoring banks face higher-powered contracts - higher loan shares - after a reputation loss. Despite this substitution, banks supply less credit and borrower financial policy and investment are affected, indicating that formal incentives are an imperfect substitute for reputation.

Number of Pages in PDF File: 58

Keywords: Banking, Reputation, Commitment, Investment

JEL Classification: G21, G31

working papers series


Download This Paper

Date posted: July 1, 2009 ; Last revised: August 17, 2011

Suggested Citation

Lin, Huidan and Paravisini, Daniel, What's Bank Reputation Worth? The Effect of Fraud on Financial Contracts and Investment (June 1, 2011). Available at SSRN: http://ssrn.com/abstract=1427330 or http://dx.doi.org/10.2139/ssrn.1427330

Contact Information

Huidan Lin
International Monetary Fund ( email )
700 19th Street
Washington D.C., DC 20431
United States
Daniel Paravisini (Contact Author)
London School of Economics & Political Science (LSE) ( email )
Houghton Street
London, WC2A 2AE
United Kingdom
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States

Feedback to SSRN


Paper statistics
Abstract Views: 1,393
Downloads: 336
Download Rank: 50,035
References:  81
Citations:  5

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.297 seconds