IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Bank connections, corporate investment and crisis

Listed author(s):
  • Espenlaub, Susanne
  • Khurshed, Arif
  • Sitthipongpanich, Thitima
Registered author(s):

    Against the backdrop of a severe financial crisis and extensive restructuring of the financial sector, we investigate the evolution and determinants of connections between firms and banks, and the impact of bank connections on corporate investment. Our study examines Thai non-financial companies during 1995–2000, a period straddling the East Asian Financial Crisis of 1997–1998. Before the crisis, bank-connections are common and associated with significantly lower sensitivity of corporate investment to internal cash flow. After the crisis, and following substantial changes in bank ownership and governance due to financial-sector reforms and restructuring, far fewer firms are bank-connected and connections no longer affect investment–cash flow sensitivity.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.sciencedirect.com/science/article/pii/S0378426611003438
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

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

    Volume (Year): 36 (2012)
    Issue (Month): 5 ()
    Pages: 1336-1353

    as
    in new window

    Handle: RePEc:eee:jbfina:v:36:y:2012:i:5:p:1336-1353
    DOI: 10.1016/j.jbankfin.2011.11.024
    Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

    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.:

    as
    in new window

    1. Lukas Menkhoff & Doris Neuberger & Chodechai Suwanaporn, 2005. "Collateral-Based Lending in Emerging Markets: Evidence from Thailand," Finance 0501008, EconWPA.
    2. Mara Faccio & Larry HP Lang & Leslie Young, 2010. "Pyramiding vs leverage in corporate groups: International evidence," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(1), pages 88-104, January.
    3. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
    4. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    5. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 1998. "Corporate Ownership Around the World," NBER Working Papers 6625, National Bureau of Economic Research, Inc.
    6. Polsiri, Piruna & Wiwattanakantang, Yupana, 2006. "Corporate Governance of Banks in Thailand," CEI Working Paper Series 2005-20, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    7. Caprio, Gerard & Laeven, Luc & Levine, Ross, 2007. "Governance and bank valuation," Journal of Financial Intermediation, Elsevier, vol. 16(4), pages 584-617, October.
    8. Agrawal, Anup & Knoeber, Charles R, 2001. "Do Some Outside Directors Play a Political Role?," Journal of Law and Economics, University of Chicago Press, vol. 44(1), pages 179-198, April.
    9. Elsas, Ralf, 2005. "Empirical determinants of relationship lending," Journal of Financial Intermediation, Elsevier, vol. 14(1), pages 32-57, January.
    10. Barclay, Michael J & Smith, Clifford W, Jr, 1995. " The Maturity Structure of Corporate Debt," Journal of Finance, American Finance Association, vol. 50(2), pages 609-631, June.
    11. Gregor Andrade & Steven N. Kaplan, 1997. "How Costly is Financial (not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distressed," NBER Working Papers 6145, National Bureau of Economic Research, Inc.
    12. Patrick M. McGuire, 2003. "Bank ties and bond market access : evidence on investment-cash flow sensitivity in Japan," Proceedings 859, Federal Reserve Bank of Chicago.
    13. Wiwattanakantang, Yupana, 2001. "Controlling shareholders and corporate value: Evidence from Thailand," Pacific-Basin Finance Journal, Elsevier, vol. 9(4), pages 323-362, August.
    14. Kroszner, Randall S. & Strahan, Philip E., 2001. "Bankers on boards: *1: monitoring, conflicts of interest, and lender liability," Journal of Financial Economics, Elsevier, vol. 62(3), pages 415-452, December.
    15. A. Burak Güner & Ulrike Malmendier & Geoffrey Tate, 2006. "Financial Expertise of Directors," NBER Working Papers 11914, National Bureau of Economic Research, Inc.
    16. Takeo Hoshi & Anil K. Kashyap & David Scharfstein, 1989. "Corporate structure, liquidity, and investment: evidence from Japanese industrial groups," Finance and Economics Discussion Series 82, Board of Governors of the Federal Reserve System (U.S.).
    17. Dinc, I. Serdar, 2005. "Politicians and banks: Political influences on government-owned banks in emerging markets," Journal of Financial Economics, Elsevier, vol. 77(2), pages 453-479, August.
    18. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1990. "The role of banks in reducing the costs of financial distress in Japan," Journal of Financial Economics, Elsevier, vol. 27(1), pages 67-88, September.
    19. Leslie E Teo & Charles Enoch & Carl-Johan Lindgren & Tomás J. T. Baliño & Anne Marie Gulde & Marc G Quintyn, 2000. "Financial Sector Crisis and Restructuring; Lessons from Asia: Lessons from Asia," IMF Occasional Papers 188, International Monetary Fund.
    20. Houston, Joel F & James, Christopher M, 2001. "Do Relationships Have Limits? Banking Relationships, Financial Constraints, and Investment," The Journal of Business, University of Chicago Press, vol. 74(3), pages 347-374, July.
    21. Kaplan, Steven N. & Minton, Bernadette A., 1994. "Appointments of outsiders to Japanese boards: Determinants and implications for managers," Journal of Financial Economics, Elsevier, vol. 36(2), pages 225-258, October.
    22. Wei, K.C. John & Zhang, Yi, 2008. "Ownership structure, cash flow, and capital investment: Evidence from East Asian economies before the financial crisis," Journal of Corporate Finance, Elsevier, vol. 14(2), pages 118-132, April.
    23. Rafael La Porta & Florencio Lopez-de-Silane & Guillermo Zamarripa, 2002. "Related Lending," NBER Working Papers 8848, National Bureau of Economic Research, Inc.
    24. Perotti, Enrico C., 1993. "Bank lending in transition economies," Journal of Banking & Finance, Elsevier, vol. 17(5), pages 1021-1032, September.
    25. McMillan, John & Woodruff, Christopher, 1998. "Inter-Firm Relationships and Informal Credit in Vietnam," CEPR Discussion Papers 2036, C.E.P.R. Discussion Papers.
    26. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
    27. Shen, Chung-Hua & Wang, Chien-An, 2005. "Does bank relationship matter for a firm's investment and financial constraints? The case of Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 13(2), pages 163-184, March.
    28. Stijn Claessens & Joseph P. H. Fan, 2002. "Corporate Governance in Asia: A Survey," International Review of Finance, International Review of Finance Ltd., vol. 3(2), pages 71-103.
    29. Chutatong Charumilind & Raja Kali & Yupana Wiwattanakantang, 2006. "Connected Lending: Thailand before the Financial Crisis," The Journal of Business, University of Chicago Press, vol. 79(1), pages 181-218, January.
    30. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
    31. Elyasiani, Elyas & Goldberg, Lawrence G., 2004. "Relationship lending: a survey of the literature," Journal of Economics and Business, Elsevier, vol. 56(4), pages 315-330.
    32. Shahidur Rahman & Lian Hwa Tan & Ooi Lyn Hew & Yih San Tan, 2004. "Identifying Financial Distress Indicators of Selected Banks in Asia," Asian Economic Journal, East Asian Economic Association, vol. 18(1), pages 45-57, 03.
    33. Steven N. Kaplan & Luigi Zingales, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 169-215.
    34. 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.
    35. Khanthavit, Anya & Polsiri, Piruna & Wiwattanakantang, Yupana, 2003. "Did Families Lose or Gain Control after the East Asian Financial Crisis?," CEI Working Paper Series 2003-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    36. Allayannis, George & Mozumdar, Abon, 2004. "The impact of negative cash flow and influential observations on investment-cash flow sensitivity estimates," Journal of Banking & Finance, Elsevier, vol. 28(5), pages 901-930, May.
    37. Narjess Boubakri & Omrane Guedhami & Dev Mishra, 2010. "Family control and the implied cost of equity: Evidence before and after the Asian financial crisis," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(3), pages 451-474, April.
    38. Tarun Khanna & Yishay Yafeh, 2007. "Business Groups in Emerging Markets: Paragons or Parasites?," Journal of Economic Literature, American Economic Association, vol. 45(2), pages 331-372, June.
    39. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
    40. Gibson, Michael S, 1995. "Can Bank Health Affect Investment? Evidence from Japan," The Journal of Business, University of Chicago Press, vol. 68(3), pages 281-308, July.
    41. Asim Ijaz Khwaja & Atif Mian, 2005. "Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market," The Quarterly Journal of Economics, Oxford University Press, vol. 120(4), pages 1371-1411.
    42. Kadapakkam, Palani-Rajan & Kumar, P. C. & Riddick, Leigh A., 1998. "The impact of cash flows and firm size on investment: The international evidence," Journal of Banking & Finance, Elsevier, vol. 22(3), pages 293-320, March.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:36:y:2012:i:5:p:1336-1353. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.