Capital Market Development and Financial System Architecture: Evidence from Stock Market Liquidity and Bank Syndicated Lending

60 Pages Posted: 28 Mar 2018 Last revised: 4 Nov 2019

See all articles by Jonathan Brogaard

Jonathan Brogaard

University of Utah - David Eccles School of Business

Phong T. H. Ngo

Australian National University (ANU)

Ying Xia

Monash University - Monash Business School

Date Written: November 2, 2019

Abstract

Why banks and stock markets co-exist is much debated. We test whether stock market developments complement or substitute bank financing activity. We find that stock market improvements increase the amount of credit banks make available to firms. Banks also become more willing to participate in syndicated lending. We show the channel of the complementarity is through improved stock price informativeness, which allows banks to learn more about the borrowing firm, reducing the adverse selection costs associated with syndication.

Keywords: comparative financial systems, liquidity, stock price informativeness, feedback effect, syndicated loans, information asymmetry

JEL Classification: G10, G14, G21, G32

Suggested Citation

Brogaard, Jonathan and Ngo, Phong T. H. and Xia, Ying, Capital Market Development and Financial System Architecture: Evidence from Stock Market Liquidity and Bank Syndicated Lending (November 2, 2019). Available at SSRN: https://ssrn.com/abstract=3150149 or http://dx.doi.org/10.2139/ssrn.3150149

Jonathan Brogaard

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

HOME PAGE: http://www.jonathanbrogaard.com

Phong T. H. Ngo (Contact Author)

Australian National University (ANU) ( email )

RSFAS, College of Business and Economics
Australian National University
Canberra, Australian Capital Territory 0200
Australia
+61 2 6125 1079 (Phone)

HOME PAGE: http://cbe.anu.edu.au/people/rsfas/phong-ngo/

Ying Xia

Monash University - Monash Business School ( email )

900 Dandenong Road
Caulfield Campus
Melbourne, Victoria 3145
Australia

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