Foreign bank entry and firms’ access to bank credit: Evidence from China

This paper studies the impact of foreign bank entry on domestic firms’ access to bank credit using a within-country staggered geographic variation in the policy of foreign bank lending in China. The paper finds that after foreign bank entry profitable firms use more long-term bank loans; whereas firms with higher value of potential collateral do not. It also finds that non-state-owned firms become able to substitute some trade credit with long-term bank loans. The findings suggest that less opaque firms and non-state-owned firms benefit more from foreign bank entry and that collateral may only play a limited role in mitigating the problem of information asymmetry when creditors’ rights are not well protected in a host country.     

Greasing the wheels of bank lending: Evidence from private firms in China

Bribery, rather than firm performance, largely determines the extent to which private firms access bank credit in China. Bribery enables an economic outcome whereby firms with better economic performance are awarded larger loans. These firms also pay more in terms of bribes. Although satisfactory firm performance does determine whether firms can access loans, it does so only for loans originated by the big-four banks. For loans originated by smaller banks, performance is not essential for firms to secure loan access. Our evidence sheds light on the surprising finding of earlier studies that Chinese banks use commercial logic in their lending practices despite being endowed with a weak institutional framework.     

How does greater bank competition affect borrower screening? Evidence from China's WTO entry

We analyze the relationship between greater bank competition and the screening of potential borrowers. Using a large sample of Chinese private firms and China's entry into the WTO as a unique setting leading to greater bank competition, we find the following. First, the sensitivity of bank credit to prior borrowing-firm performance increases after China's WTO entry. This sensitivity increase is greater in more bank-dependent industries and smaller in Chinese regions with greater financial sector development. Second, the increase in the sensitivity of bank credit to firm performance is much greater for state-owned firms compared to private firms. Third, the effect of bank credit on subsequent firm productivity and performance is greater for loans given after China's WTO entry compared to those given prior to WTO entry. Overall, the results of our empirical analysis suggest that the stringency of bank screening of borrowers in China increased with greater banking sector competition.     

The effect of foreign bank presence on firm entry and exit in transition economies

This study investigates the impact of foreign bank penetration on firm entry in Central and Eastern Europe. Acquisition of domestic banks by foreign investors has lowered rates of firm creation, decreased the average size of entrants, and increased firm exit in industries with greater informational opacity, while entry of greenfield foreign banks appears to have spurred firm creation and exit. We modify the view in earlier studies that informational opacity equates with firm size, defining opacity in terms of technological characteristics for a given industry. We find the economic significance of foreign bank entry is larger for opaque industries than industries with large shares of small firms. The study provides evidence of increased credit constraints for start-ups in Central and Eastern Europe which is consistent with the theoretical proposition that the presence of foreign banks exacerbates informational asymmetries.     

Bank ownership and lending patterns during the 2008–2009 financial crisis: Evidence from Latin America and Eastern Europe

This paper examines the impact of bank ownership on credit growth in developing countries before and during the 2008–2009 crisis. Using bank-level data for countries in Eastern Europe and Latin America, we analyze the growth of banks’ total gross loans as well as the growth of corporate, consumer, and residential mortgage loans. While domestic private banks in Eastern Europe and Latin America contracted their loan growth rates during the crisis, there are notable differences in foreign and government-owned bank credit growth across regions. In Eastern Europe, foreign bank total lending fell by more than domestic private bank credit. These results are primarily driven by reductions in corporate loans. Furthermore, government-owned banks in Eastern Europe did not act counter-cyclically. The opposite is true in Latin America, where the growth of government-owned banks’ corporate and consumer loans during the crisis exceeded that of domestic and foreign banks. Contrary to the case of foreign banks in Eastern Europe, those in Latin America did not fuel loan growth prior to the crisis. Also, there are less pronounced and robust differences in the behavior of foreign and domestic banks during the crisis in Latin America.     

Foreign currency borrowing by small firms in emerging markets: When domestic banks intermediate dollars

This paper investigates what induces small firms in an emerging market economy to borrow dollar credit from domestic banks. Our data are from a unique survey of firms in Lebanon. The findings complement studies of large firms with foreign currency loans from foreign lenders. Exporters, naturally hedged against currency risk, are more likely to incur dollar debt. Firms also partly hedge themselves by passing currency risk to customers and suppliers. Less opaque firms with easily verifiable collateral and higher net worth are more likely to access dollar credit. Firms reliant on formal financing (banks and supplier credit) are more likely to contract dollar debt than firms reliant on informal financing (family, friends and moneylenders). Bank relationships, however, do not increase the dollar debt likelihood. And finally, profitable firms are less likely to have dollar debt. Information frictions and limited collateral, therefore, constrain dollar credit even when it is intermediated domestically.     

Credit derivatives and bank credit supply

Credit derivatives are the latest in a series of innovations that have had a significant impact on credit markets. Using a micro data set of individual corporate loans, this paper explores whether use of credit derivatives is associated with an increase in bank credit supply. We find only limited evidence that greater use of credit derivatives is associated with greater supply of bank credit. The strongest effect is for large term loans—newly negotiated loan extensions to large corporate borrowers, with a largely negative impact on (previously negotiated) commitment lending. Even for large term borrowers, increases in the volume of credit are offset by higher spreads. These findings suggest that the benefits of the growth of credit derivatives may be narrow, accruing mainly to large firms that are likely to be “named credits” in these transactions. Finally, use of credit derivatives appears to be complementary to other forms of hedging by banks, though the banks most active in hedging appear to charge more for additional amounts of credit.     

Foreign banks and credit stability in Central and Eastern Europe. A panel data analysis

We examine whether foreign and domestic banks in Central and Eastern Europe react differently to business cycles and banking crises. Our panel dataset comprises data of more than 250 banks for the period 1993–2000, with information on bank ownership and mode of entry. During crisis periods domestic banks contracted their credit base, whereas greenfield foreign banks did not. Also, home country conditions matter for foreign bank growth, as there is a significant negative relationship between home country economic growth and host country credit by greenfields. Finally, greenfield foreign banks’ credit growth is influenced by the health of the parent bank.     

Asymmetric information and the mode of entry in foreign credit markets

In a newly liberalized credit market, foreign banks with cost advantages are likely to be less informed than domestic banks that hold information on credit risks. These relative advantages may generate incentives for a foreign bank to negotiate acquisition of a domestic bank in order to capture information endowments. However, if it is difficult to assess the value of information held by banks, the foreign bank will face important choices about the optimal mode of entry and what acquisition price to pay. These choices have implications for the survival of domestic banks and how capital is allocated after liberalization.     

Do banks appraise internal capital markets during credit shocks? Evidence from the Greek crisis

Using data of bank loans to Greek firms during the Greek crisis we provide evidence that affiliated firms, having access to the internal capital markets of their associated group, are less likely to default on their loans. Furthermore, banks require lower loan collateral coverage from affiliated firms and are less likely to downgrade the affiliates’ credit profile. Finally, banks are more likely to show forbearance to affiliated firms with non-performing loans. The results are consistent with the view that banks manage their relationships with firms in a business group jointly, as opposed to viewing each firm as an independent entity. Our findings also suggest that the value of risk sharing through internal capital markets increases when external financing is scarce.     

Dissecting Foreign Bank Lending Behavior During the 2008–2009 Crisis

This paper analyzes the lending behavior of foreign‐owned banks during the recent global crisis. Using bank‐level panel data for 51 countries, the paper explores the role of affiliate and parent financial characteristics, host location, as well as the impact of parent geographic origin and reach on foreign banks’ credit growth. Overall, the analysis finds robust evidence that foreign banks curtailed the growth of credit relative to other banks, independent of the host region in which they operate. Banks from the United States reduced loan growth less than other parent banks. Neither the global nor regional reach of parent banks influenced the lending growth of foreign affiliates. Parent capitalization and not parent funding explained the behavior of foreign bank credit growth during the global crisis. However, funding did affect the lending behavior of domestic and foreign banks in host countries, with those relying more heavily on deposits suffering a smaller decline in bank lending. Although not the focus of the paper, we also find that government‐owned banks played a countercyclical role in all regions.     

Changing banking relationships and client‐firm performance: Evidence from Japan for the 1990s

The extant literature generally suggests that the performance of client firms deteriorates if their distressed main bank reduces the supply of credit. However, this insight is only consistent with the notion that main banks have an information advantage over other banks to the extent that a client firm has trouble getting access to credit if the firm changes its main bank. This paper shows that Japanese firms did change their main banking relationship when their main banks become distressed in a period with financial shocks. Surprisingly, these firms did not suffer from loss of access to credit and actually their performance significantly improved after their change of main banks.     

The ability of banks to lend to informationally opaque small businesses

We test hypotheses about the effects of bank size, foreign ownership, and distress on lending to informationally opaque small firms using a rich new data set on Argentinean banks, firms, and loans. We also test hypotheses about borrowing from a single bank versus multiple banks. Our results suggest that large and foreign-owned institutions may have difficulty extending relationship loans to opaque small firms. Bank distress appears to have no greater effect on small borrowers than on large borrowers, although even small firms may react to bank distress by borrowing from multiple banks, raising borrowing costs and destroying some relationship benefits.     

When green meets green

We investigate whether and how the environmental consciousness (greenness for short) of firms and banks is reflected in the pricing of bank credit. Using a large international sample of syndicated loans over the period 2011–2019, we find that green banks indeed reward firms for being green in the form of cheaper loans—however, only after the ratification of the Paris Agreement in 2015. Such loans are also more likely term loans, with fewer covenants and reflect firms' project choices. Thus, we find that environmental attitudes matter “when green meets green.”     

What happens after corporate default? Stylized facts on access to credit

In this paper, we investigate what happens to firms after they default on their bank loans. We approach this question by establishing a set of stylized facts concerning the evolution of corporate default and its resolution, focusing on access to credit after default. Using a unique dataset from Portugal, we observe that half of the corporate default episodes last 5 quarters. Most firms continue to have access to credit immediately after resolving default, though only a minority has access to new loans. Firms have more difficulties in regaining access to credit if they are small, if their default was long and severe, if they borrow from only one bank or if they default with their main lender. Further, half of the defaulting firms record another default in the future. We observe that firms with repeated defaults are, on average, smaller and experience longer and more severe defaults.     

财政存款、银行竞争与僵尸企业形成

银行以优惠利率贷款为低质企业“输血”,是企业僵尸化的重要成因。然而,基于中国背景的文献,对银行“输血”动机的研究并不充分,本文从地方财政存款影响银行信贷分配的视角,分析僵尸企业形成的内在机理。首先,通过构建理论模型对银行竞争财政存款及影响企业融资和投资绩效进而僵尸化的逻辑进行刻画,而后依据省份财政存款、银行竞争与微观企业财务数据,对理论推论进行了验证。研究发现,财政存款占当地存款比重越大,企业僵尸化概率越高,并且银行竞争助长了企业僵尸化。此外,基于工具变量估计处理了核心变量的内生性问题,并进行了多种稳健性检验。机制检验表明,财政存款的信贷分配效应,促使企业过度投资,导致经营绩效恶化,进而提高了企业僵尸化概率,银行竞争则会加剧该效应。本文拓展了财政存款的经济效应与僵尸企业形成方面的文献,对于僵尸企业治理有一定参考意义。     

财政存款、银行竞争与僵尸企业形成

银行以优惠利率贷款为低质企业“输血”,是企业僵尸化的重要成因。然而,基于中国背景的文献,对银行“输血”动机的研究并不充分,本文从地方财政存款影响银行信贷分配的视角,分析僵尸企业形成的内在机理。首先,通过构建理论模型对银行竞争财政存款及影响企业融资和投资绩效进而僵尸化的逻辑进行刻画,而后依据省份财政存款、银行竞争与微观企业财务数据,对理论推论进行了验证。研究发现,财政存款占当地存款比重越大,企业僵尸化概率越高,并且银行竞争助长了企业僵尸化。此外,基于工具变量估计处理了核心变量的内生性问题,并进行了多种稳健性检验。机制检验表明,财政存款的信贷分配效应,促使企业过度投资,导致经营绩效恶化,进而提高了企业僵尸化概率,银行竞争则会加剧该效应。本文拓展了财政存款的经济效应与僵尸企业形成方面的文献,对于僵尸企业治理有一定参考意义。     

Formal finance and trade credit during China's transition

Using a large panel dataset of Chinese industrial firms, we find that poorly performing SOEs were more likely to redistribute credit to firms with less privileged access to loans via trade credit. While that could be consistent with the efficient redistribution of credit, it is more likely that these SOEs extended trade credit to prop up faltering customers that were in arrears. By contrast, profitable private domestic firms were more likely to extend trade credit than unprofitable ones. Trade credit likely provided a substitute for loans for these firms' customers that were shut out of formal credit markets. As biases in lending become less severe, the allocation of lending became more efficient, and the amount of trade credit extended by private firms declined. Our evidence implies that redistribution of bank loans via trade was not a major contributor to China's explosive growth.     

Trade credit use and bank loan access: an agency theory perspective

In this study we find that firms’ use of trade credit significantly facilitates their access to bank loans in the future, suggesting a complementary relationship. Such a relationship is more profound for firms with higher perceived agency costs, i.e., firms with opaque corporate information, firms located in regions with less developed external institutions, and firms at an early stage of existence. Firms switch from trade credit to bank loans as the main source of debt financing as they age. However, the process is slower for firms with a greater level of corporate information opacity and firms located in regions with weak external institutions.