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Soft Related Lending: A Tale of Two Korean Banks

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  • John P. Bonin

    (Economics Deapartment, Wesleyan University)

  • Masami Imai

    (Economics and East Asian Studies, Wesleyan University)

Abstract

In this paper, we present indirect evidence that the IMF’s insistence on foreign control of two large nationwide Korean banks in exchange for short-term support during the 1997 financial crisis helped restrain soft related lending practices. News signaling the likely sale of a bank to a foreign financial institution yields an average daily decrease of about 2% in the stock price of related borrowers. News indicating difficulty in finding an interested foreign investor generates an increase in the stock price of related borrowers of about the same magnitude. These signals have larger impacts on less-profitable, less-liquid, and more bank-dependent firms.

Suggested Citation

  • John P. Bonin & Masami Imai, 2005. "Soft Related Lending: A Tale of Two Korean Banks," Wesleyan Economics Working Papers 2005-011, Wesleyan University, Department of Economics.
    • Handle: RePEc:wes:weswpa:2005-011
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    References listed on IDEAS

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    1. Rafael La Porta & Florencio Lopez-de-Silanes & Guillermo Zamarripa, 2003. "Related Lending," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 231-268.
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    Cited by:

    1. Masami Imai, 2009. "Political Influence and Declarations of Bank Insolvency in Japan," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(1), pages 131-158, February.
    2. Beck, Thorsten, 2006. "Creating an efficient financial system : challenges in a global economy," Policy Research Working Paper Series 3856, The World Bank.
    3. Boubakri, Narjess & Cosset, Jean-Claude & Guedhami, Omrane, 2009. "From state to private ownership: Issues from strategic industries," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 367-379, February.
    4. Patrick Honohan & Thorsten Beck, 2007. "Making Finance Work for Africa," World Bank Publications - Books, The World Bank Group, number 6626.

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    More about this item

    Keywords

    Related Lending; Korean Banks; Privatization; Globalization;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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