Connected Lending: Thailand Before the Financial Crisis
Posted: 16 Nov 2003
We use a detailed dataset on Thai firms before the Asian crisis of 1997 to examine whether business connections predict preferential access to long term bank credit. We find that firms with connections to banks and politicians had greater access to long-term debt than firms without such ties. Connected firms need less collateral, obtain more long term loans, and appear to use less short term loans than those without connections. We do not find connections between banks and firms reducing asymmetric information problems. This is consistent with research implicating weak corporate governance in the extent and severity of the crisis.
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