Information from Relationship Lending: Evidence from Loan Defaults in China

86 Pages Posted: 15 Mar 2009 Last revised: 14 May 2014

Chun Chang

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

Guanmin Liao

Central University of Finance and Economics - School of Accountancy

Xiaoyun Yu

Indiana University - Kelley School of Business - Department of Finance; China Academy of Financial Research (CAFR)

Zheng Ni

Renmin University of China - Hanqing Advanced Institute of Economics and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: June 24, 2013

Abstract

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.

Keywords: Debt default, internal credit ratings, credit risk, relationship lending, soft information

JEL Classification: G21, D81, D82, D83, F34

Suggested Citation

Chang, Chun and Liao, Guanmin and Yu, Xiaoyun and Ni, Zheng, Information from Relationship Lending: Evidence from Loan Defaults in China (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. Available at SSRN: https://ssrn.com/abstract=1359627

Chun Chang

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

Guanmin Liao

Central University of Finance and Economics - School of Accountancy ( email )

No. 39, South College Road, Haidian District
Beijing, 100081
China

Xiaoyun Yu (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3521 (Phone)
812-855-5875 (Fax)

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Zheng Ni

Renmin University of China - Hanqing Advanced Institute of Economics and Finance ( email )

Room B906
Xianjin Building
Beijing, Beijing 100872
China

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