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Courtesy calls for reciprocity: the effect of purchasing financial products from banks on firm borrowing

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  • Bin Wu
  • Lijing Tong
  • Min Zhang
  • Xin Wang

Abstract

Using data of Chinese listed firms, we find that firms that purchase financial products from banks are more likely to obtain loans from these banks than firms that do not buy. The probability is 52% and 58% higher for the three-year and one-year look-back window, respectively. This phenomenon is more pronounced for borrowers who are non-SOE or low-risk ones. Our findings reveal that by purchasing financial products from banks, firms can build relationship with them and consequently obtain loans more easily. Our paper contributes to the extant literature on the channels and mechanisms of relationship building between banks and firms.

Suggested Citation

  • Bin Wu & Lijing Tong & Min Zhang & Xin Wang, 2022. "Courtesy calls for reciprocity: the effect of purchasing financial products from banks on firm borrowing," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 29(3), pages 761-792, May.
    • Handle: RePEc:taf:raaexx:v:29:y:2022:i:3:p:761-792
    DOI: 10.1080/16081625.2020.1828103
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    Cited by:

    1. Huang, Yong & Yan, Chao & Chan, Kam C., 2022. "Does the truth rest with the minority? Divergent views on nonfinancial firms' financial investments from the private equity market," International Review of Financial Analysis, Elsevier, vol. 83(C).

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