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

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

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Relationship Lending, Accounting Disclosure,
and Credit Availability during the Asian Financial Crisis∗
by: Wenying Jiangli, Haluk Unal, and Chiwon Yom, September 2006
FDIC Center for Financial Research Working paper

We examine whether lending relationships benefit firms by making credit more available
during periods of financial stress. Our main finding is that during the Asian financial crisis of July 1997 through the end of 1998, relationship lending increased the likelihood that Korean and Thai firms would obtain credit but it had no effect on Indonesian and Philippine firms. We ask if accounting disclosure might explain the observed differences among the three countries for which audit information is available. We find that for Indonesian firms with weak lending relationships, banks replace relationship lending technology with a financial-statement lending technology. Such a result does not hold for Korean and Philippine firms.
Relationship Lending, Accounting Disclosure,
and Credit Availability during the Asian Financial Crisis∗
by: Wenying Jiangli, Haluk Unal, and Chiwon Yom, September 2006
FDIC Center for Financial Research Working paper

We examine whether lending relationships benefit firms by making credit more available
during periods of financial stress. Our main finding is that during the Asian financial crisis of July 1997 through the end of 1998, relationship lending increased the likelihood that Korean and Thai firms would obtain credit but it had no effect on Indonesian and Philippine firms. We ask if accounting disclosure might explain the observed differences among the three countries for which audit information is available. We find that for Indonesian firms with weak lending relationships, banks replace relationship lending technology with a financial-statement lending technology. Such a result does not hold for Korean and Philippine firms.

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Published by: Muhammad Arief Billah on Jul 11, 2008
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Federal Deposit InsuranceCorporation Center for Financial Researchh
FDIC Center for Financial ResearchWorking Paper  No. 2005-08
Relationship Lending, Accounting Disclosure, andCredit Availability during the Asian Financial CrisisWenying JiangliHaluk UnalChiwon YomJune 2005
The views expressed here are those of the author(s) and not necessarilythose of the Federal Deposit Insurance Corporation
Revised September 2006
 
 
1
Relationship Lending, Accounting Disclosure,and Credit Availability during the Asian Financial Crisis
 
 byWenying Jiangli*Haluk Unal**Chiwon Yom*September 2006FDIC Center for Financial Research Working paper 
Abstract
We examine whether lending relationships benefit firms by making credit more availableduring periods of financial stress. Our main finding is that during the Asian financial crisis of July 1997 through the end of1998, relationship lending increased the likelihood that Korean andThai firms would obtain credit but it had no effect on Indonesian and Philippine firms. We ask if accounting disclosure might explain the observed differences among the three countries for which audit information is available. We find that for Indonesian firms with weak lendingrelationships, banks replace relationship lending technology with a financial-statement lendingtechnology. Such a result does not hold for Korean and Philippine firms.
 Key Words
: relationship lending, accounting disclosure, credit availability
Senior Financial Economist at the Federal Deposit Insurance Corporation (FDIC). E-mail:wjiangli@fdic.gov, phone: 202-898-6537, fax: 202-898-8636.
Senior Financial Economist attheFDIC. E-mail:cyom@fdic.gov, phone: 202-898-3720, fax: 202-898-8636. ** University of Maryland and Center for Financial Research, FDIC. E-mail:hunal@rhsmith.umd.edu, phone:301-405-2256. The views expressed here are those of the authors and do not necessarily reflectthe views of the Federal Deposit Insurance Corporation. We appreciate the comments of Rosalind Bennett, Ralf Elsas, Mark Flannery, Reint Gropp, Robert Hauswald, Paul Kupiec, Dan Nuxoll, John O’Keefe, Jack Reidhill, Katherine Samolyk, and participants in workshops or seminars at the following venues: the FDIC; American University; the 2004 workshop hosted jointly by the Basel Committee on Banking Supervision, the Centre for Economic PolicyResearch (CEPR), and the Journal of Financial Intermediation; the 2004 meetings of the WesternEconomics Association, the Financial Management Association, and the Southern FinanceAssociation; and the 2005 Federal Reserve Bank of Chicago Bank Structure and Competitionmeeting. Sarah Junker provided research assistance. All errors are our own.
 
 
2
 JEL Classification
: G20, G21, G28
CFR Research Programs
: bank performance and the economy, corporate finance
 

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