To Follow or Not to Follow Peers’ Loan Decisions: Bank Loan Herding in Taiwan
30 Pages Posted: 16 Feb 2014
Date Written: February 09, 2014
This study examines whether Taiwanese banks engage in loan herding. Our loan herding denotes industrial lending by a sufficient number of banks during each half-year period of 2002-2011. We calculate inter-temporal correlation between lending over two consecutive periods and decompose the correlation into the own following and other following. The latter constitutes loan herding. Our results demonstrate that the other cascade explains more than 90% of inter-temporal correlation, indicating the existence of loan herding. Then, we use the conscientious definition of the weight of bank loan portfolios to investigate whether bank loan herding still exists. Our results support again the existence of loan herding. Next, we explore four motivations for loan herding: informational cascade, investigative herding, reputational herding, and characteristic herding. Our results suggest that investigative herding, reputational herding, and characteristic herding are the likely drivers of the other cascade.
Keywords: Loan herding, lend herding, other cascade, habit lending, investigative herding.
JEL Classification: C21, D03, G02, G21.
Suggested Citation: Suggested Citation