Connected Lending: Thailand before the Financial Crisis
We used a detailed data set on Thai firms before the Asian crisis of 1997 to examine whether business connections predicted preferential access to long-term bank credit. We found that firms with connections to banks and politicians had greater access to long-term debt than firms without such ties. Connected firms needed less collateral, obtained more long-term loans, and appeared to use fewer short-term loans than those without connections. We found no connections between banks and firms reducing asymmetric information problems. This is consistent with research implicating weak corporate governance in the extent and severity of the crisis.
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