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Soft Related Lending: A Tale of Two Korean Banks

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Author Info
John P. Bonin () (Economics Deapartment, Wesleyan University)
Masami Imai () (Economics and East Asian Studies, Wesleyan University)
Abstract

In this paper, we present indirect evidence that the IMF’s insistence on foreign control of two large nationwide Korean banks in exchange for short-term support during the 1997 financial crisis helped restrain soft related lending practices. News signaling the likely sale of a bank to a foreign financial institution yields an average daily decrease of about 2% in the stock price of related borrowers. News indicating difficulty in finding an interested foreign investor generates an increase in the stock price of related borrowers of about the same magnitude. These signals have larger impacts on less-profitable, less-liquid, and more bank-dependent firms.

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Publisher Info
Paper provided by Wesleyan University, Department of Economics in its series Wesleyan Economics Working Papers with number 2005-011.

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Length: 34 pages
Date of creation: Dec 2005
Date of revision:
Publication status: Forthcoming in the Journal of Banking and Finance
Handle: RePEc:wes:weswpa:2005-011

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Related research
Keywords: Related Lending; Korean Banks; Privatization; Globalization;

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bae, Kee-Hong & Kang, Jun-Koo & Lim, Chan-Woo, 2002. "The value of durable bank relationships: evidence from Korean banking shocks," Journal of Financial Economics, Elsevier, vol. 64(2), pages 181-214, May. [Downloadable!] (restricted)
  2. Cull, Robert & Matesova, Jana & Shirley, Mary, 2002. "Ownership and the Temptation to Loot: Evidence from Privatized Firms in the Czech Republic," Journal of Comparative Economics, Elsevier, vol. 30(1), pages 1-24, March. [Downloadable!] (restricted)
  3. Rafael La Porta & Florencio López-de-Silanes & Guillermo Zamarripa, 2003. "Related Lending," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 231-268, February. [Downloadable!] (restricted)
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  4. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March. [Downloadable!] (restricted)
  5. Yongil Jeon & Stephen M. Miller, 2004. "The effect of the Asian financial crisis on the performance of Korean nationwide banks," Applied Financial Economics, Taylor and Francis Journals, vol. 14(5), pages 351-360, March. [Downloadable!] (restricted)
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  6. Laeven, Luc, 2001. "Insider Lending and Bank Ownership: The Case of Russia," Journal of Comparative Economics, Elsevier, vol. 29(2), pages 207-229, June. [Downloadable!] (restricted)
  7. Joe Peek & Eric S. Rosengren, 2005. "Unnatural Selection: Perverse Incentives and the Misallocation of Credit in Japan," American Economic Review, American Economic Association, vol. 95(4), pages 1144-1166, September. [Downloadable!]
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  8. Raghuram G. Rajan & Luigi Zingales, 1998. "Which Capitalism? Lessons from the East Asian Crisis," CRSP working papers 486, Center for Research in Security Prices, Graduate School of Business, University of Chicago. [Downloadable!]
    Other versions:
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