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The Reputation Effect

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  • Lionel Artige
  • Rosella Nicolini

Abstract

This paper proposes an empirical analysis of the role of memory in determining the size of credits granted by the European Bank for Reconstruction and Development (EBRD) during 1991–2003. We first build an original database from information associated with the number and contract types granted by clients, after which we develop an empirical strategy for capturing the role of memory, namely by defining three different indicators to approximate each client’s reputation. These indicators rely on the client’s identity and, when available, information associated with previous EBRD-financed investment projects. With the fixed-effects estimation technique, our results unambiguously show that the value of the first investment project financed by the EBRD, as a proxy for reputation, is the most effective indicator for established clients to determine the size of the credits they receive to finance further investments.

Suggested Citation

  • Lionel Artige & Rosella Nicolini, 2015. "The Reputation Effect," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 4(1), pages 1-17, January.
    • Handle: RePEc:rbs:ijfbss:v:4:y:2015:i:1:id:379
    DOI: 10.20525/ijfbs.v4i1.201
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    References listed on IDEAS

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    1. Gleb Lanine & Rudi Vander Vennet, 2007. "Microeconomic determinants of acquisitions of Eastern European banks by Western European banks1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 15(2), pages 285-308, April.
    2. Chiappori, Pierre-Andre & Macho, Ines & Rey, Patrick & Salanie, Bernard, 1994. "Repeated moral hazard: The role of memory, commitment, and the access to credit markets," European Economic Review, Elsevier, vol. 38(8), pages 1527-1553, October.
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