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Crises, Cronyism, and Credit

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  • Michael S. Pagano

Abstract

This paper examines the effects of several potential explanatory factors related to the 1997–1998 East Asian crisis. We find that a crisis can improve a poorly functioning credit system by making domestic lending rates more responsive to market‐based returns. We report that the responsiveness of short‐term lending rates is directly related to the level of transparency in the economy. Thus, countries with greater transparency (less corruption) are more likely to make credit decisions based on market‐wide forces rather than succumb to the influence of special interest groups. Nations with greater transparency also experience significantly shorter and less severe economic downturns.

Suggested Citation

  • Michael S. Pagano, 2002. "Crises, Cronyism, and Credit," The Financial Review, Eastern Finance Association, vol. 37(2), pages 227-256, May.
    • Handle: RePEc:bla:finrev:v:37:y:2002:i:2:p:227-256
    DOI: 10.1111/1540-6288.00013
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    Cited by:

    1. Pagano, Michael S., 2008. "Credit, cronyism, and control: Evidence from the Americas," Journal of International Money and Finance, Elsevier, vol. 27(3), pages 387-410, April.
    2. Petrou, Andreas P. & Thanos, Ioannis C., 2014. "The “grabbing hand” or the “helping hand” view of corruption: Evidence from bank foreign market entries," Journal of World Business, Elsevier, vol. 49(3), pages 444-454.
    3. Thomas Begley & Naresh Khatri & Eric Tsang, 2010. "Networks and cronyism: A social exchange analysis," Asia Pacific Journal of Management, Springer, vol. 27(2), pages 281-297, June.
    4. Frank Kwabi & Agyenim Boateng & Samuel Fosu & TingTing Zhu & Marian Chijoke‐Mgbame, 2022. "Foreign equity portfolio flow and corruption: A cross‐country evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 68-87, January.
    5. Jiho Jang & Jaechul Lee, 2008. "Citizen Views of Globalization and State Governance in Korea," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 11(2), pages 93-109, September.
    6. Abdel-Baki Monal A., 2012. "The Impact of Basel III on Emerging Economies," Global Economy Journal, De Gruyter, vol. 12(2), pages 1-33, June.
    7. Jain, Pankaj K. & Kuvvet, Emre & Pagano, Michael S., 2017. "Corruption’s impact on foreign portfolio investment," International Business Review, Elsevier, vol. 26(1), pages 23-35.

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