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Are Banks Different? Evidence from International Data

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  • Claudia M. Buch

Abstract

Pecking order models of international finance suggest that countries should become less reliant on international bank lending as they develop. Reduced information costs are one of the factors behind this trend towards disintermediation. This paper presents a simple model on the choice between bank debt and bond finance which builds on Rajan (1992), and it uses two new datasets to test the implications, focusing on bilateral cross-border bank claims and bond holdings. We find support for the hypothesis that the state of development of an economy lowers the share of bank finance. However, evidence on the importance of variables which more directly measure information costs is less clear-cut.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1012.

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Length: 27 pages
Date of creation: Nov 2000
Date of revision:
Handle: RePEc:kie:kieliw:1012

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Keywords: international bank lending; international portfolio investment;

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References

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  1. Diamond, Douglas W., 1993. "Seniority and maturity of debt contracts," Journal of Financial Economics, Elsevier, Elsevier, vol. 33(3), pages 341-368, June.
  2. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research, Working Paper Series, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkele qt0sx02651, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  3. Schnitzer, Monika, 2002. "Debt v. foreign direct investment: The impact of sovereign risk on the structure of international capital flows," Munich Reprints in Economics, University of Munich, Department of Economics 19886, University of Munich, Department of Economics.
  4. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
  5. Richard Portes & Helene Rey, 1999. "The Determinants of Cross-Border Equity Flows," NBER Working Papers 7336, National Bureau of Economic Research, Inc.
  6. Moshirian, Fariborz & Van der Laan, Alex, 1998. "Trade in financial services and the determinants of banks' foreign assets," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 8(1), pages 23-38, January.
  7. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2002. "Government Ownership of Banks," Journal of Finance, American Finance Association, American Finance Association, vol. 57(1), pages 265-301, 02.
  8. Barry Eichengreen & Ashoka Mody, 1999. "Lending Booms, Reserves, and the Sustainability of Short-Term Debt: Inferences from the Pricing of Syndicated Bank Loans," NBER Working Papers 7113, National Bureau of Economic Research, Inc.
  9. Razin, A & Sadka, E & Yuen, C-W, 1997. "A Pecking Order of Capital Inflows and International Tax Principles," Papers, Tel Aviv - the Sackler Institute of Economic Studies 12-97, Tel Aviv - the Sackler Institute of Economic Studies.
  10. Fernandez-Arias, Eduardo & DEC, 1994. "The new wave of private capital inflows : push or pull?," Policy Research Working Paper Series, The World Bank 1312, The World Bank.
  11. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  12. Wei, S.J. & Kim, W., 1999. "Foreign Portfolio Investors Before and During a Crisis," Papers, Chicago - Graduate School of Business 6, Chicago - Graduate School of Business.
  13. Brennan, Michael J & Cao, H Henry, 1997. " International Portfolio Investment Flows," Journal of Finance, American Finance Association, American Finance Association, vol. 52(5), pages 1851-80, December.
  14. Benjamin E. Hermalin & Andrew K. Rose, 1999. "Risks to Lenders and Borrowers in International Capital Markets," NBER Working Papers 6886, National Bureau of Economic Research, Inc.
  15. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2000. "External Capital Structure: Theory and Evidence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2583, C.E.P.R. Discussion Papers.
  16. Zhaohui Chen & Mohsin S. Khan, 1997. "Patterns of Capital Flows to Emerging Markets," IMF Working Papers, International Monetary Fund 97/13, International Monetary Fund.
  17. Linda L. Tesar & Ingrid M. Werner, 1992. "Home Bias and the High Turnover," NBER Working Papers 4218, National Bureau of Economic Research, Inc.
  18. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, American Finance Association, vol. 47(4), pages 1367-400, September.
  19. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, American Finance Association, vol. 39(3), pages 575-92, July.
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Citations

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Cited by:
  1. Daude, Christian & Fratzscher, Marcel, 2008. "The pecking order of cross-border investment," Journal of International Economics, Elsevier, Elsevier, vol. 74(1), pages 94-119, January.
  2. Galina Hale, 2003. "Bonds or Loans? The Effect of Macroeconomic Fundamentals," Yale School of Management Working Papers, Yale School of Management ysm343, Yale School of Management, revised 01 Apr 2007.
  3. Soyoung Kim & Jong-Wha Lee & Kwanho Shin, 2006. "Regional and Global Financial Integration in East Asia," Discussion Paper Series 0602, Institute of Economic Research, Korea University.
  4. Philip R. Lane & Gian Maria Milesi-Ferretti, 2008. "International Investment Patterns," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 538-549, August.
  5. Hahm, Joon-Ho & Shin, Kwanho, 2006. "Complementarity among International Asset Holdings: Do Banks Have a Special Role?," MPRA Paper 705, University Library of Munich, Germany.
  6. Joern Kleinert & Bettina Brueggemann & Esteban Prieto, 2012. "The Ideal Loan and the Patterns of Cross-Border Bank Lending," Graz Economics Papers, University of Graz, Department of Economics 2012-03, University of Graz, Department of Economics.
  7. Lee, Jong-Wha, 2008. "Patterns and Determinants of Cross-border Financial Asset Holdings in East Asia," Working Papers on Regional Economic Integration, Asian Development Bank 13, Asian Development Bank.
  8. Mishra, Anil V., 2007. "International investment patterns: Evidence using a new dataset," Research in International Business and Finance, Elsevier, Elsevier, vol. 21(2), pages 342-360, June.
  9. Barry Eichengreen & Pipat Luengnaruemitchai, 2008. "Bond Markets as Conduits for Capital Flows: How Does Asia Compare?," NBER Chapters, National Bureau of Economic Research, Inc, in: International Financial Issues in the Pacific Rim: Global Imbalances, Financial Liberalization, and Exchange Rate Policy (NBER-EASE Volume 17), pages 267-313 National Bureau of Economic Research, Inc.
  10. Pericoli, Filippo & Pierucci, Eleonora & Ventura, Luigi, 2011. "International investment positions and risk sharing: an empirical analysis on the coordinated portfolio investment survey," MPRA Paper 33071, University Library of Munich, Germany.
  11. Shin, Kwanho & Yang, Doo Yong, 2006. "Complementarity between Bilateral Trade and Financial Integration," MPRA Paper 694, University Library of Munich, Germany.
  12. Thomas, Hugh & Wang, Zhiqiang, 2004. "The integration of bank syndicated loan and junk bond markets," Journal of Banking & Finance, Elsevier, Elsevier, vol. 28(2), pages 299-329, February.
  13. Pipat Luengnaruemitchai & Barry J. Eichengreen, 2006. "Bond Markets As Conduits for Capital Flows," IMF Working Papers, International Monetary Fund 06/238, International Monetary Fund.
  14. Okawa, Yohei & van Wincoop, Eric, 2012. "Gravity in International Finance," Journal of International Economics, Elsevier, Elsevier, vol. 87(2), pages 205-215.
  15. Hahm, Joon-Ho & Shin, Kwanho, 2009. "Complementarity among international asset holdings," Journal of the Japanese and International Economies, Elsevier, vol. 23(1), pages 37-55, March.

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