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Connected Lending: Thailand before the Financial Crisis

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  • 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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  1. Wiwattanakantang, Yupana, 2001. "Controlling shareholders and corporate value: Evidence from Thailand," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 9(4), pages 323-362, August.
  2. Khanthavit, Anya & Polsiri, Piruna & Wiwattanakantang, Yupana, 2003. "Did Families Lose or Gain Control after the East Asian Financial Crisis?," CEI Working Paper Series, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University 2003-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  3. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, Elsevier, vol. 65(3), pages 365-395, September.
  4. Bongini, Paola & Claessens, Stijn & Ferri, Giovanni, 2000. "The political economy of distress in East Asian financial institutions," Policy Research Working Paper Series 2265, The World Bank.
  5. Pomerleano, Michael, 1998. "The East Asia crisis and corporate finances : the untold micro story," Policy Research Working Paper Series 1990, The World Bank.
  6. Simon Johnson & John McMillan & Christopher Woodruff, 2001. "Courts and Relational Contracts," NBER Working Papers 8572, National Bureau of Economic Research, Inc.
  7. 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.
  8. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, American Economic Association, vol. 83(3), pages 525-48, June.
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