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Collective relationship banking and private information monitoring in Korea1

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  • Yoonhee Tina Chang

Abstract

This paper introduces the notion of collective relationship banking (CRB) as a mechanism for monitoring private information and characterizes the probability of such a banking relationship existing when the borrowing firms have heterogeneous vertical ownership structures. Using a Korean firm‐level panel dataset, the empirical results of the paper suggest that firms with smaller holding companies’ ownership stakes are more likely to choose CRB. This can be explained in terms of CRB as a means to overcome informational asymmetries as holding companies can provide indirect monitoring. The paper then addresses policy concerns associated with corporate restructuring which may create a more concentrated banking relationship with a few dominant banks.

Suggested Citation

  • Yoonhee Tina Chang, 2007. "Collective relationship banking and private information monitoring in Korea1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 15(3), pages 483-504, July.
    • Handle: RePEc:bla:etrans:v:15:y:2007:i:3:p:483-504
    DOI: 10.1111/j.1468-0351.2007.00296.x
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