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Credit Rationing for Bad Companies in Bad Years: Evidence from Bank Loan Transaction Data

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  • Shen, Chung-Hua
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    Abstract

    This paper examines whether or not there is equilibrium credit rationing using Taiwan banks loans' transaction data. Our transaction data are unique since they help us to identify the exact lenders and borrowers, thus reducing the aggregation bias. This paper raises three hypotheses to test equilibrium credit rationing. First, we argue that the loan supply should bend backward to be consistent with equilibrium credit rationing. Second, credit rationing is expected to be more severe in bad years than in good years, suggesting stronger asymmetric information during turbulent days. Third, the asymmetric information is more severe for bad companies than for good companies. Our results support almost all hypotheses except when a bad company is similarly credit rationed as a good company in bad years. Copyright @ 2002 by John Wiley & Sons, Ltd. All rights reserved.

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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

    Volume (Year): 7 (2002)
    Issue (Month): 3 (July)
    Pages: 261-78

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    Handle: RePEc:ijf:ijfiec:v:7:y:2002:i:3:p:261-78

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    Cited by:
    1. Wu, Meng-Wen & Shen, Chung-Hua, 2013. "Corporate social responsibility in the banking industry: Motives and financial performance," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3529-3547.
    2. BAUWENS, Luc & LUBRANO, Michel, . "Bayesian inference in dynamic disequilibrium models: an application to the Polish credit market," CORE Discussion Papers RP -1918, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Wang, Chien-An & Shen, Chung-Hua, 2012. "Decoupling the distressed banks and their clients, and coupling the distressed firms and their lending banks," Pacific-Basin Finance Journal, Elsevier, vol. 20(3), pages 483-505.
    4. Cowling, Marc, 2007. "The Role of Loan Guarantee Schemes in Alleviating Credit Rationing in the UK," MPRA Paper 1613, University Library of Munich, Germany.
    5. Chung-Hua Shen & Haumin Chu & Yu-Chun Wang, 2012. "Who Furls the Umbrella on Rainy Days? The Role of Bank Ownership Type and Bank Size in SME Lending," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 48(0), pages 184-199, July.

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