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Related lending and banking development

Author

Listed:
  • Cull, Robert
  • Haber, Stephen
  • Imai, Masami

Abstract

Does related lending have positive or negative effects on the development of banking systems? This paper analyzes a unique cross-country data set covering 74 countries from 1990 to 2007, and finds that related lending, on average, does not have any effect on the growth of credit. The authors do find, however, that there are conditional relationships: related lending tends to retard the growth of banking systems when rule of law is weak, while it tends to promote the growth of banking systems when rule of law is strong. They also find that related lending appears to be associated with looting when banks are owned by non-financial firms, but that it does not when non-financial firms are owned by banks. The results indicate that whether related lending is positive or pernicious depends critically on the institutional context in which it takes place; there is no single"best policy"regarding related lending. These findings are robust to alternative specifications, including instrumental variable regressions.

Suggested Citation

  • Cull, Robert & Haber, Stephen & Imai, Masami, 2011. "Related lending and banking development," Policy Research Working Paper Series 5570, The World Bank.
  • Handle: RePEc:wbk:wbrwps:5570
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    References listed on IDEAS

    as
    1. Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 375-399, March.
    2. Demirguc-Kunt, Asli & Karacaovali, Baybars & Laeven, Luc, 2005. "Deposit insurance around the world : a comprehensive database," Policy Research Working Paper Series 3628, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Randall Morck, 2011. "Finance and Governance in Developing Economies," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 375-406, December.
    2. repec:eee:worbus:v:53:y:2018:i:4:p:504-513 is not listed on IDEAS
    3. Grossman, Richard S. & Imai, Masami, 2016. "Taking the lord's name in vain: The impact of connected directors on 19th century British banks," Explorations in Economic History, Elsevier, vol. 59(C), pages 75-93.
    4. Laetitia Lepetit & Amine Tarazi & Nadia Zedek, 2012. "Ultimate Ownership Structure and Bank Regulatory Capital Adjustment: Evidence from European Commercial Banks," Working Papers hal-00918579, HAL.
    5. repec:eee:ecofin:v:44:y:2018:i:c:p:235-253 is not listed on IDEAS
    6. Enrico Perotti, 2013. "The Political Economy of Finance," Tinbergen Institute Discussion Papers 13-034/IV/DSF53, Tinbergen Institute.
    7. Siwapong Dheera-aumpon, 2017. "Collectivism and Connected Lending," PIER Discussion Papers 57, Puey Ungphakorn Institute for Economic Research, revised Apr 2017.
    8. Gajewski, Krzysztof & Pawłowska, Małgorzata & Rogowski, Wojciech, 2012. "Relacje firm z bankami w Polsce w świetle danych ze sprawozdawczości bankowej
      [Bank-firm relationships in Poland in the light of data from bank reporting]
      ," MPRA Paper 42544, University Library of Munich, Germany, revised 29 Oct 2012.
    9. repec:eee:corfin:v:50:y:2018:i:c:p:223-242 is not listed on IDEAS
    10. Dheera-aumpon, Siwapong, 2016. "Bank ownership and connected lending," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 274-286.
    11. Tarun Khanna & Yishay Yafeh, 2007. "Business Groups in Emerging Markets: Paragons or Parasites?," Journal of Economic Literature, American Economic Association, vol. 45(2), pages 331-372, June.

    More about this item

    Keywords

    Banks&Banking Reform; Debt Markets; Bankruptcy and Resolution of Financial Distress; Labor Policies; Economic Theory&Research;

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