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Do Banks Have Private Information? Bank screening and ex-post small firm performance

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  • HOSONO Kaoru
  • XU Peng

Abstract

This paper examines whether commercial banks screen loan applications based on private information on firms' future profitability, and consequently how banks' ex-ante private information and screening decisions affect firms' ex-post profitability. Using a dataset of banks' loan application screenings and the ex-post firm performance for Japanese SMEs, we obtained strong evidences suggesting that banks' ex-ante private information was related to firms' ex-post performance. We found this relationship to be especially strong for small, mature firms, which supports the relationship-lending hypothesis.

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Bibliographic Info

Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 09016.

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Length: 33 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:eti:dpaper:09016

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References

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  16. Arito Ono & Iichiro Uesugi, 2005. "The Role of Collateral and Personal Guarantees in Relationship Lending: Evidence from Japan's Small Business Loan Market," Discussion papers 05027, Research Institute of Economy, Trade and Industry (RIETI).
  17. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-400, September.
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  19. Jeremy Berkowitz & Michelle J. White, 2002. "Bankruptcy and Small Firms' Access to Credit," NBER Working Papers 9010, National Bureau of Economic Research, Inc.
  20. 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.
  21. Hori, Masahiro, 2005. "Does bank liquidation affect client firm performance? Evidence from a bank failure in Japan," Economics Letters, Elsevier, vol. 88(3), pages 415-420, September.
  22. Angelini, P. & Di Salvo, R. & Ferri, G., 1998. "Availability and cost of credit for small businesses: Customer relationships and credit cooperatives," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 925-954, August.
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Cited by:
  1. HOSONO Kaoru, 2009. "Financial Crisis, Firm Dynamics and Aggregate Productivity in Japan," Discussion papers 09012, Research Institute of Economy, Trade and Industry (RIETI).

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