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The Reputation Effect:A Case Study of Credit Contracts in Transition Economies

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  • Lionel Artige

    (HEC,Department of Economics, Universitéde Liège, Belgium)

  • Rosella Nicolini

    (Department of Applied Economics, Univesitat Autonoma de Barcelona, Spain)

Abstract

This paper proposes an empirical analysis ofthe role of memory in determiningthe size of credits granted by the European Bank for Reconstruction and Development(EBRD)during1991–2003.Wefirstbuild an original database frominformation associated with thenumber and contracttypesgranted by clients, after which we develop an empirical strategy forcapturingthe role of memory, namelyby definingthree different indicators to approximateeachclient’sreputation. These indicators rely on theclient’sidentity and, when available, information associated withprevious EBRD-financed investment projects. Withthe fixed-effectsestimation technique, our results unambiguously show that the value of the firstinvestment project financed by the EBRD,asaproxy for reputation,isthe most effective indicatorfor established clientsto determine the size of the credits they receiveto financefurther investments.

Suggested Citation

  • Lionel Artige & Rosella Nicolini, 2015. "The Reputation Effect:A Case Study of Credit Contracts in Transition Economies," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 4(1), pages 01-17, January.
    • Handle: RePEc:rbs:ijfbss:v:4:y:2015:i:1:p:01-17
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    References listed on IDEAS

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    5. Richard A. Lambert, 1983. "Long-Term Contracts and Moral Hazard," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 441-452, Autumn.
    6. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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