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Relationship Banking in Bilateral Oligopoly and Asymmetric Information

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  • Yoonhee Tina Chang

Abstract

This paper investigates the economic principles underlying the relationship between the real sector (non-financial) and the banking sector structures. Most literature has so far focused on the structure of conglomerates (Keiretsu/Chaebol) in East Asia in explaining the fast economic growth and/or recent crisis in the region. Traditionally, the strong vertical relationship between core companies and their subsidiaries in the real sector was believed to be a driving force for the economic success in the region. However, the degree of vertical relationship varies depending upon macroeconomic fluctuations and subsequently affects their relationship banks. The paper analyses the information sharing in a bilateral oligopoly framework. When banks prefer strong collaterals and/or credible third party repayment guarantees, a weaker vertical relationship in the real sector should lead to a consolidation in the banking sector via mergers or exits. Empirical evidence from the panel data constructed for the top 10 Chaebols and their subsidiaries between 1994-2002 supports the argument

Suggested Citation

  • Yoonhee Tina Chang, 2004. "Relationship Banking in Bilateral Oligopoly and Asymmetric Information," Econometric Society 2004 Far Eastern Meetings 734, Econometric Society.
  • Handle: RePEc:ecm:feam04:734
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    1. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
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    7. Thakor, Anjan V., 2000. "Relationship Banking," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 3-5, January.
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    9. Allen N. Berger & Gregory F. Udell, 2002. "Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure," Economic Journal, Royal Economic Society, vol. 112(477), pages 32-53, February.
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    More about this item

    Keywords

    Relationship Banking; Bilateral Oligopoly; Vertical Relation; Asymmetric information;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L59 - Industrial Organization - - Regulation and Industrial Policy - - - Other

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