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Credit rationing for bad companies in bad years: evidence from bank loan transaction data
Author(s) -
Shen ChungHua
Publication year - 2002
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.188
Subject(s) - credit rationing , rationing , loan , database transaction , economics , monetary economics , transaction cost , credit history , actuarial science , microeconomics , business , financial system , finance , interest rate , database , health care , computer science , economic growth
This paper examines whether or not there is equilibrium credit rationing using Taiwan banks loans' transaction data. Our transaction data are unique since they help us to identify the exact lenders and borrowers, thus reducing the aggregation bias. This paper raises three hypotheses to test equilibrium credit rationing. First, we argue that the loan supply should bend backward to be consistent with equilibrium credit rationing. Second, credit rationing is expected to be more severe in bad years than in good years, suggesting stronger asymmetric information during turbulent days. Third, the asymmetric information is more severe for bad companies than for good companies. Our results support almost all hypotheses except when a bad company is similarly credit rationed as a good company in bad years. Copyright © 2002 John Wiley & Sons, Ltd.