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Shock propaganda, asset quality and lending behaviour

Author

Listed:
  • Tho Pham

    () (School of Management, Swansea University)

  • Oleksandr Talavera

    () (School of Management, Swansea University)

  • Andriy Tsapin

Abstract

In this paper, we employ the 2014 geopolitical conflict in Eastern Ukraine as a negative shock to banks' assets and examine its impacts on banking sector. We find that banks are hit by the conflict more severely if they granted more loans in the conflict areas as of 2014 Q1. Consequently, in the onset of the unrest, more exposed banks experience a sharper increase in troubled assets and a deeper reduction in credit supply compared to less affected counterparts. Additionally, the shock in the East can be transmitted to other markets through the interconnectedness among banks and branches but the spillover is mitigated by the market - conflict distance. Further analysis provides evidence for the "flight to headquarters" effect in credit allocation whereby more affected banks tend to cut lending more in the markets which are farther away from the headquarters.

Suggested Citation

  • Tho Pham & Oleksandr Talavera & Andriy Tsapin, 2018. "Shock propaganda, asset quality and lending behaviour," Working Papers 2018-04, Swansea University, School of Management.
  • Handle: RePEc:swn:wpaper:2018-04
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    File URL: https://rahwebdav.swan.ac.uk/repec/pdf/WP2018-04.pdf
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    References listed on IDEAS

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    Cited by:

    1. Pham, Tho & Talavera, Oleksandr & Tsapin, Andriy, 2018. "Shock contagion, asset quality and lending behavior," BOFIT Discussion Papers 21/2018, Bank of Finland, Institute for Economies in Transition.

    More about this item

    Keywords

    Geopolitical shock; credit allocation; asset quality; flight to headquarters; difference-in-differences.;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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