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Soft related lending: A tale of two Korean banks

  • Bonin, John P.
  • Imai, Masami

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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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 31 (2007)
Issue (Month): 6 (June)
Pages: 1713-1729

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Handle: RePEc:eee:jbfina:v:31:y:2007:i:6:p:1713-1729
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  1. Raghuram G. Rajan & Luigi Zingales, 1998. "Which Capitalism? Lessons Form The East Asian Crisis," Journal of Applied Corporate Finance, Morgan Stanley, vol. 11(3), pages 40-48.
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  5. Laeven, Luc, 2001. "Insider Lending and Bank Ownership: The Case of Russia," Journal of Comparative Economics, Elsevier, vol. 29(2), pages 207-229, June.
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