Relationship Lending, Accounting Disclosure, and Credit Availability During the Asian Financial Crisis

Abstract

In this paper we examine whether the intensity of banking relationships, measured by the number of banks with which a firm does business, benefits firms by making credit more available during periods of financial stress. We model credit availability to be determined jointly with the decision to post collateral and with the firm's choice of the number of lending relationships. Our main finding is that relationship banking increased the likelihood of obtaining credit during the Asian crisis for Korean and Thai firms. In contrast, we observe no significant association between relationship banking and credit availability for Indonesian and Philippine firms. We consider accounting disclosure a possible alternative factor that can explain the observed country differences. Our results show that except for Indonesia, audited financial information and accounting disclosure have no material impact on banks' credit decisions.

Keywords: relationship lending, accounting disclosure, credit availability

JEL Classification: G20, G21, G28