IDEAS home Printed from https://ideas.repec.org/a/wly/jmoncb/v46y2014i6p1225-1257.html
   My bibliography  Save this article

Information from Relationship Lending: Evidence from Loan Defaults in China

Author

Listed:
  • CHUN CHANG
  • GUANMIN LIAO
  • XIAOYUN YU
  • ZHENG NI

Abstract

Using a proprietary database from a large Chinese state‐owned bank, we examine whether information evolved from banking relationships predicts commercial loan default by industrial firms. We find that the bank's relationship information is significantly linked to the incidence of default, and that its contribution to prediction accuracy is larger than any hard information. Furthermore, the effect of relationship information is stronger among firms that have a more sustained banking relationship. Our findings indicate that, at least in the emerging markets, a bank's relationship information still matters for large firms, despite the fact that hard information for such firms is abundant.

Suggested Citation

  • Chun Chang & Guanmin Liao & Xiaoyun Yu & Zheng Ni, 2014. "Information from Relationship Lending: Evidence from Loan Defaults in China," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(6), pages 1225-1257, September.
    • Handle: RePEc:wly:jmoncb:v:46:y:2014:i:6:p:1225-1257
    DOI: 10.1111/jmcb.12139
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jmcb.12139
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jmcb.12139?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Dow, James & Gorton, Gary, 1997. "Stock Market Efficiency and Economic Efficiency: Is There a Connection?," Journal of Finance, American Finance Association, vol. 52(3), pages 1087-1129, July.
    2. Sumit Agarwal & Brent W. Ambrose & Souphala Chomsisengphet & Chunlin Liu, 2011. "The Role of Soft Information in a Dynamic Contract Setting: Evidence from the Home Equity Credit Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(4), pages 633-655, June.
    3. Berger, Allen N & Frame, W Scott & Miller, Nathan H, 2005. "Credit Scoring and the Availability, Price, and Risk of Small Business Credit," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 191-222, April.
    4. Bhattacharya Sudipto & Thakor Anjan V., 1993. "Contemporary Banking Theory," Journal of Financial Intermediation, Elsevier, vol. 3(1), pages 2-50, October.
    5. Berger, Allen N. & Miller, Nathan H. & Petersen, Mitchell A. & Rajan, Raghuram G. & Stein, Jeremy C., 2005. "Does function follow organizational form? Evidence from the lending practices of large and small banks," Journal of Financial Economics, Elsevier, vol. 76(2), pages 237-269, May.
    6. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-381, July.
    7. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    8. Galina Hale & Cheryl Long, 2010. "What are the Sources of Financing of the Chinese Firms?," Working Papers 192010, Hong Kong Institute for Monetary Research.
    9. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 393-414.
    10. Puri, Manju & Rocholl, Jörg, 2008. "On the importance of retail banking relationships," Journal of Financial Economics, Elsevier, vol. 89(2), pages 253-267, August.
    11. Sumit Agarwal & Souphala Chomsisengphet & Chunlin Liu & Nicholas S. Souleles, 2010. "Benefits of relationship banking: evidence from consumer credit markets," Working Paper Series WP-2010-05, Federal Reserve Bank of Chicago.
    12. Jonathan Scott, 2004. "Small Business and the Value of Community Financial Institutions," Journal of Financial Services Research, Springer;Western Finance Association, vol. 25(2), pages 207-230, April.
    13. Ram T. S. Ramakrishnan & Anjan V. Thakor, 1984. "Information Reliability and a Theory of Financial Intermediation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 415-432.
    14. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
    15. Petersen, Mitchell A & Rajan, Raghuram G, 1994. "The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Santikian, Lori, 2014. "The ties that bind: Bank relationships and small business lending," Journal of Financial Intermediation, Elsevier, vol. 23(2), pages 177-213.
    2. Simon Cornée, 2014. "Soft Information and Default Prediction in Cooperative and Social Banks," Journal of Entrepreneurial and Organizational Diversity, European Research Institute on Cooperative and Social Enterprises, vol. 3(1), pages 89-103, June.
    3. Udell, Gregory F., 2008. "What's in a relationship The case of commercial lending," Business Horizons, Elsevier, vol. 51(2), pages 93-103.
    4. Cole, Rebel & Sokolyk, Tatyana, 2016. "Who needs credit and who gets credit? Evidence from the surveys of small business finances," Journal of Financial Stability, Elsevier, vol. 24(C), pages 40-60.
    5. Chang, C. & Liao, G. & Yu, X. & Ni, Z., 2009. "Information from Relationship Lending : Evidence from China," Discussion Paper 2009-39 S, Tilburg University, Center for Economic Research.
    6. Fantazzini, Dean & DeGiuli, Maria Elena & Figini, Silvia & Giudici, Paolo, 2009. "Enhanced credit default models for heterogeneous SME segments," Journal of Financial Transformation, Capco Institute, vol. 25, pages 31-39.
    7. Tlili, Rim, 2012. "Comment justifier la multibancarité au sein des PME ?," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/10919 edited by Etner, François.
    8. Bouwman, Christa H. S., 2013. "Liquidity: How Banks Create It and How It Should Be Regulated," Working Papers 13-32, University of Pennsylvania, Wharton School, Weiss Center.
    9. Elyasiani, Elyas & Goldberg, Lawrence G., 2004. "Relationship lending: a survey of the literature," Journal of Economics and Business, Elsevier, vol. 56(4), pages 315-330.
    10. Kirschenmann, K., 2010. "The Dynamics in Requested and Granted Loan Terms when Bank and Borrower Interact Repeatedly," Other publications TiSEM 40d5005c-1626-4511-aa8a-f, Tilburg University, School of Economics and Management.
    11. Modina, Michele & Pietrovito, Filomena & Gallucci, Carmen & Formisano, Vincenzo, 2023. "Predicting SMEs’ default risk: Evidence from bank-firm relationship data," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 254-268.
    12. Hibbeln, Martin & Norden, Lars & Usselmann, Piet & Gürtler, Marc, 2020. "Informational synergies in consumer credit," Journal of Financial Intermediation, Elsevier, vol. 44(C).
    13. Degryse, H.A. & Cerqueiro, G.M. & Ongena, S., 2007. "Distance, Bank Organizational Structure and Credit," Other publications TiSEM 34c2f607-3395-4fd9-9c52-4, Tilburg University, School of Economics and Management.
    14. Gorton, Gary & Winton, Andrew, 2003. "Financial intermediation," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 8, pages 431-552, Elsevier.
    15. Ferri, Giovanni & Murro, Pierluigi, 2015. "Do firm–bank ‘odd couples’ exacerbate credit rationing?," Journal of Financial Intermediation, Elsevier, vol. 24(2), pages 231-251.
    16. Boot, Arnoud & Hoffmann, Peter & Laeven, Luc & Ratnovski, Lev, 2021. "Fintech: what’s old, what’s new?," Journal of Financial Stability, Elsevier, vol. 53(C).
    17. Beck, Thorsten & Degryse, Hans & De Haas, Ralph & van Horen, Neeltje, 2018. "When arm's length is too far: Relationship banking over the credit cycle," Journal of Financial Economics, Elsevier, vol. 127(1), pages 174-196.
    18. DeYoung, Robert & Frame, W. Scott & Glennon, Dennis & McMillen, Daniel P. & Nigro, Peter, 2008. "Commercial lending distance and historically underserved areas," Journal of Economics and Business, Elsevier, vol. 60(1-2), pages 149-164.
    19. Allen N. Berger & William Goulding & Tara N. Rice, 2013. "Do Small Businesses Still Prefer Community Banks?," International Finance Discussion Papers 1096, Board of Governors of the Federal Reserve System (U.S.).
    20. Kirschenmann, K., 2010. "The Dynamics in Requested and Granted Loan Terms when Bank and Borrower Interact Repeatedly," Other publications TiSEM 300df022-4701-4773-a8b7-c, Tilburg University, School of Economics and Management.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:jmoncb:v:46:y:2014:i:6:p:1225-1257. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.