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Connected Lending: Thailand before the Financial Crisis

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Author Info

  • Chutatong Charumilind

    (The Ministry of Finance of Thailand)

  • Raja Kali

    (University of Arkansas)

  • Yupana Wiwattanakantang

    (Hitotsubashi University)

Abstract

We used a detailed data set on Thai firms before the Asian crisis of 1997 to examine whether business connections predicted preferential access to long-term bank credit. We found that firms with connections to banks and politicians had greater access to long-term debt than firms without such ties. Connected firms needed less collateral, obtained more long-term loans, and appeared to use fewer short-term loans than those without connections. We found no 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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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 79 (2006)
Issue (Month): 1 (January)
Pages: 181-218

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Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:1:p:181-218

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References

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  1. John McMillan & Christopher Woodruff, 1998. "Interfirm Relationships and Informal Credit in Vietnam," William Davidson Institute Working Papers Series 132, William Davidson Institute at the University of Michigan.
  2. Wiwattanakantang, Yupana, 2001. "Controlling Shareholders and Corporate Value: Evidence from Thailand," CEI Working Paper Series 2001-4, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  3. Pomerleano, Michael, 1998. "The East Asia crisis and corporate finances : the untold micro story," Policy Research Working Paper Series 1990, The World Bank.
  4. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
  5. Simon Johnson & John McMillan, 2002. "Courts and Relational Contracts," Journal of Law, Economics and Organization, Oxford University Press, vol. 18(1), pages 221-277, April.
  6. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, vol. 65(3), pages 365-395, September.
  7. Paola Bongini & Stijn Claessens & Giovanni Ferri, 2001. "The Political Economy of Distress in East Asian Financial Institutions," Journal of Financial Services Research, Springer, vol. 19(1), pages 5-25, February.
  8. Khanthavit, Anya & Polsiri, Piruna & Wiwattanakantang, Yupana, 2003. "Did Families Lose or Gain Control after the East Asian Financial Crisis?," CEI Working Paper Series 2003-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
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Citations

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Cited by:
  1. Francis , Bill B & Hasan, Iftekhar & Sun, Xian, 2009. "Political connections and the process of going public: evidence from China," Research Discussion Papers 7/2009, Bank of Finland.
  2. Leuz, Christian & Oberholzer-Gee, Felix, 2006. "Political relationships, global financing, and corporate transparency: Evidence from Indonesia," Journal of Financial Economics, Elsevier, vol. 81(2), pages 411-439, August.
  3. Bunkanwanicha, Pramuan & Wiwattanakantang, Yupana, 2006. "Big Business Owners and Politics: Investigating the Economic Incentives of Holding Top Office," CEI Working Paper Series 2006-10, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  4. Boubakri, Narjess & Cosset, Jean-Claude & Saffar, Walid, 2008. "Political connections of newly privatized firms," Journal of Corporate Finance, Elsevier, vol. 14(5), pages 654-673, December.
  5. Shams Pathan & Michael Skully & J. Wickramanayake, 2007. "Board Size, Independence and Performance: An Analysis of Thai Banks," Asia-Pacific Financial Markets, Springer, vol. 14(3), pages 211-227, September.
  6. Claessens, Stijn & Feijen, Erik & Laeven, Luc, 2007. "Political Connections and Preferential Access to Finance: The Role of Campaign Contributions," CEPR Discussion Papers 6045, C.E.P.R. Discussion Papers.
  7. Fan, Joseph P.H. & Rui, Oliver Meng & Zhao, Mengxin, 2008. "Public governance and corporate finance: Evidence from corruption cases," Journal of Comparative Economics, Elsevier, vol. 36(3), pages 343-364, September.
  8. Claessens, Stijn & Perotti, Enrico, 2007. "Finance and inequality: Channels and evidence," Journal of Comparative Economics, Elsevier, vol. 35(4), pages 748-773, December.
  9. Lloyd Steier, 2009. "Familial capitalism in global institutional contexts: Implications for corporate governance and entrepreneurship in East Asia," Asia Pacific Journal of Management, Springer, vol. 26(3), pages 513-535, September.
  10. Kunieda, Takuma & Shibata, Akihisa, 2011. "Collateral Constraints and Legal Protection of Lenders: A Macroeconomic Perspective," MPRA Paper 35356, University Library of Munich, Germany.
  11. Pathan, Shams & Skully, Michael & Wickramanayake, J., 2008. "Reforms in Thai bank governance: The aftermath of the Asian financial crisis," International Review of Financial Analysis, Elsevier, vol. 17(2), pages 345-362.
  12. Randall Morck, 2009. "The Riddle of the Great Pyramids," NBER Working Papers 14858, National Bureau of Economic Research, Inc.
  13. Rui Esteves, 2011. "The Political Economy of Global Financial Liberalisation in Historical Perspective," Economics Series Working Papers Number 89, University of Oxford, Department of Economics.
  14. Raphael H. Solomon, 2005. "Pocket Banks and Out-of-Pocket Losses: Links between Corruption and Contagion," Working Papers 05-23, Bank of Canada.
  15. Bunkanwanicha, Pramuan & Wiwattanakantang, Yupana, 2008. "Allocating Risk Across Pyramidal Tiers: Evidence from Thai Business Groups," CEI Working Paper Series 2007-14, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.

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