Forced Bank Relationship Loss: Accounting Information Opacity and Loan Conditions

52 Pages Posted: 14 Jun 2017 Last revised: 21 Mar 2019

See all articles by Yuqian Xu

Yuqian Xu

University of Illinois at Urbana-Champaign - College of Business

Anthony Saunders

New York University - Leonard N. Stern School of Business

Binqing Xiao

Nanjing University - Research Center for Banking

Xindan Li

Nanjing University

Date Written: January 9, 2018

Abstract

We examine the impact on a firm when it is exogenously forced to switch its bank relationship from one branch to another branch of the same bank. We show the effect depends directly on the relative balance between the hard accounting information provided to the bank by the firm, as part of the bank's internal credit rating system and the provision of soft information about the firm due to its prior branch relationship. We find that the loss of soft information provided to loan officers at the new branch, as a result of the forced branch switch, has a significant effect on the cost, maturity, and availability of loans from the new branch. We believe that this paper presents the "sharpest" test yet of the impact of relationship loss on a firm's cost and availability of loans.

Keywords: bank relationship, accounting information, credit availability, loan cost

JEL Classification: G15, G20, G21, G30, G32, G34, M41

Suggested Citation

Xu, Yuqian and Saunders, Anthony and Xiao, Binqing and Li, Xindan, Forced Bank Relationship Loss: Accounting Information Opacity and Loan Conditions (January 9, 2018). Available at SSRN: https://ssrn.com/abstract=2985530 or http://dx.doi.org/10.2139/ssrn.2985530

Yuqian Xu

University of Illinois at Urbana-Champaign - College of Business ( email )

Champaign, IL 61820
United States

Anthony Saunders (Contact Author)

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

Binqing Xiao

Nanjing University - Research Center for Banking ( email )

Nanjing, 210093
China

Xindan Li

Nanjing University ( email )

Nanjing, Jiangsu 210093
China

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