[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v118y2020ics0378426620301382.html
   My bibliography  Save this article

Bank relationship loss: The moderating effect of information opacity

Author

Listed:
  • Xu, Yuqian
  • Saunders, Anthony
  • Xiao, Binqing
  • Li, Xindan
Abstract
We examine the impact on a firm when it is forced to switch its bank relationship from one branch to another branch of the same bank, and how the firm’s information opacity (as proxied by the frequency with which the firm provides financial statements to the bank) moderates the consequences of relationship loss. We find the effect depends on the relative balance between the hard accounting information provided to the bank and the soft information about the firm due to its prior branch relationship. We show the loss of soft information provided to loan officers at the new branch, as a result of the forced branch switch, has a significant effect on the cost, maturity, and availability of loans from the new branch. Furthermore, we document the moderating effect of accounting information opacity on loan conditions upon relationship loss.

Suggested Citation

  • Xu, Yuqian & Saunders, Anthony & Xiao, Binqing & Li, Xindan, 2020. "Bank relationship loss: The moderating effect of information opacity," Journal of Banking & Finance, Elsevier, vol. 118(C).
    • Handle: RePEc:eee:jbfina:v:118:y:2020:i:c:s0378426620301382
    DOI: 10.1016/j.jbankfin.2020.105872
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378426620301382
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jbankfin.2020.105872?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hans Degryse & Steven Ongena, 2005. "Distance, Lending Relationships, and Competition," Journal of Finance, American Finance Association, vol. 60(1), pages 231-266, February.
    2. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
    3. Paul Klemperer, 1995. "Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(4), pages 515-539.
    4. Tullio Jappelli & Marco Pagano, 2000. "Information Sharing in Credit Markets: The European Experience," CSEF Working Papers 35, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    5. Berger, Allen N. & Miller, Nathan H. & Petersen, Mitchell A. & Rajan, Raghuram G. & Stein, Jeremy C., 2005. "Does function follow organizational form? Evidence from the lending practices of large and small banks," Journal of Financial Economics, Elsevier, vol. 76(2), pages 237-269, May.
    6. Brown, Martin & Jappelli, Tullio & Pagano, Marco, 2009. "Information sharing and credit: Firm-level evidence from transition countries," Journal of Financial Intermediation, Elsevier, vol. 18(2), pages 151-172, April.
    7. José Liberti & Jason Sturgess & Andrew Sutherland, 2018. "Economics of Voluntary Information Sharing," Working Papers 869, Queen Mary University of London, School of Economics and Finance.
    8. Viral V. Acharya & Iftekhar Hasan & Anthony Saunders, 2006. "Should Banks Be Diversified? Evidence from Individual Bank Loan Portfolios," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1355-1412, May.
    9. Padilla, A. Jorge & Pagano, Marco, 2000. "Sharing default information as a borrower discipline device," European Economic Review, Elsevier, vol. 44(10), pages 1951-1980, December.
    10. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 393-414.
    11. Hans B. Christensen & Valeri V. Nikolaev & Regina Wittenberg‐Moerman, 2016. "Accounting Information in Financial Contracting: The Incomplete Contract Theory Perspective," Journal of Accounting Research, Wiley Blackwell, vol. 54(2), pages 397-435, May.
    12. Alvis K. Lo, 2014. "Do Declines in Bank Health Affect Borrowers’ Voluntary Disclosures? Evidence from International Propagation of Banking Shocks," Journal of Accounting Research, Wiley Blackwell, vol. 52(2), pages 541-581, May.
    13. Sumit Agarwal, 2010. "Distance and Private Information in Lending," The Review of Financial Studies, Society for Financial Studies, vol. 23(7), pages 2757-2788, July.
    14. Rajan, Raghuram G, 1992. "Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-1400, September.
    15. Robert Hauswald & Robert Marquez, 2006. "Competition and Strategic Information Acquisition in Credit Markets," The Review of Financial Studies, Society for Financial Studies, vol. 19(3), pages 967-1000.
    16. Armstrong, Christopher S. & Guay, Wayne R. & Weber, Joseph P., 2010. "The role of information and financial reporting in corporate governance and debt contracting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 179-234, December.
    17. Barnea, Amir & Haugen, Robert A & Senbet, Lemma W, 1980. "A Rationale for Debt Maturity Structure and Call Provisions in the Agency Theoretic Framework," Journal of Finance, American Finance Association, vol. 35(5), pages 1223-1234, December.
    18. Sharpe, Steven A, 1990. "Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships," Journal of Finance, American Finance Association, vol. 45(4), pages 1069-1087, September.
    19. Michael Minnis & Andrew Sutherland, 2017. "Financial Statements as Monitoring Mechanisms: Evidence from Small Commercial Loans," Journal of Accounting Research, Wiley Blackwell, vol. 55(1), pages 197-233, March.
    20. Jappelli, Tullio & Pagano, Marco, 2002. "Information sharing, lending and defaults: Cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 26(10), pages 2017-2045, October.
    21. Mitchell A. Petersen & Raghuram G. Rajan, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 407-443.
    22. Andi Duqi & Angelo Tomaselli & Giuseppe Torluccio, 2018. "Is Relationship Lending Still A Mixed Blessing? A Review Of Advantages And Disadvantages For Lenders And Borrowers," Journal of Economic Surveys, Wiley Blackwell, vol. 32(5), pages 1446-1482, December.
    23. Richard Lambert & Christian Leuz & Robert E. Verrecchia, 2007. "Accounting Information, Disclosure, and the Cost of Capital," Journal of Accounting Research, Wiley Blackwell, vol. 45(2), pages 385-420, May.
    24. Jeremy C. Stein, 2002. "Information Production and Capital Allocation: Decentralized versus Hierarchical Firms," Journal of Finance, American Finance Association, vol. 57(5), pages 1891-1921, October.
    25. Carrizosa, Richard & Ryan, Stephen G., 2017. "Borrower private information covenants and loan contract monitoring," Journal of Accounting and Economics, Elsevier, vol. 64(2), pages 313-339.
    26. Meyer, Bruce D, 1995. "Natural and Quasi-experiments in Economics," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(2), pages 151-161, April.
    27. Oliver Hart & John Moore, 1994. "A Theory of Debt Based on the Inalienability of Human Capital," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 841-879.
    28. Petersen, Mitchell A & Rajan, Raghuram G, 1994. "The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    29. Tullio Jappelli & Marco Pagano, 2000. "Information Sharing in Credit Markets: A Survey," CSEF Working Papers 36, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    30. Herrera, Ana María & Minetti, Raoul, 2007. "Informed finance and technological change: Evidence from credit relationships," Journal of Financial Economics, Elsevier, vol. 83(1), pages 223-269, January.
    31. Berlin, Mitchell & Mester, Loretta J., 1992. "Debt covenants and renegotiation," Journal of Financial Intermediation, Elsevier, vol. 2(2), pages 95-133, June.
    32. Degryse, Hans & Van Cayseele, Patrick, 2000. "Relationship Lending within a Bank-Based System: Evidence from European Small Business Data," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 90-109, January.
    33. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    34. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-381, July.
    35. Flannery, Mark J, 1986. "Asymmetric Information and Risky Debt Maturity Choice," Journal of Finance, American Finance Association, vol. 41(1), pages 19-37, March.
    36. Anna M. Costello & Regina Wittenberg‐Moerman*, 2011. "The Impact of Financial Reporting Quality on Debt Contracting: Evidence from Internal Control Weakness Reports," Journal of Accounting Research, Wiley Blackwell, vol. 49(1), pages 97-136, March.
    37. Boyd, John H. & Prescott, Edward C., 1986. "Financial intermediary-coalitions," Journal of Economic Theory, Elsevier, vol. 38(2), pages 211-232, April.
    38. Inessa Love & María Martinez Pería & Sandeep Singh, 2016. "Collateral Registries for Movable Assets: Does Their Introduction Spur Firms’ Access to Bank Financing?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 49(1), pages 1-37, February.
    39. Alejandro Drexler & Antoinette Schoar, 2014. "Do Relationships Matter? Evidence from Loan Officer Turnover," Management Science, INFORMS, vol. 60(11), pages 2722-2736, November.
    40. Sutherland, Andrew, 2018. "Does credit reporting lead to a decline in relationship lending? Evidence from information sharing technology," Journal of Accounting and Economics, Elsevier, vol. 66(1), pages 123-141.
    41. Vasso Ioannidou & Steven Ongena, 2010. "“Time for a Change”: Loan Conditions and Bank Behavior when Firms Switch Banks," Journal of Finance, American Finance Association, vol. 65(5), pages 1847-1877, October.
    42. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    43. Diamond, Douglas W, 1989. "Reputation Acquisition in Debt Markets," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 828-862, August.
    44. Douglas W. Diamond, 1991. "Debt Maturity Structure and Liquidity Risk," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(3), pages 709-737.
    45. Martinez Peria, Maria Soledad & Singh, Sandeep, 2014. "The impact of credit information sharing reforms on firm financing?," Policy Research Working Paper Series 7013, The World Bank.
    46. Cole, Rebel A., 1998. "The importance of relationships to the availability of credit," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 959-977, August.
    47. Liberti, José María & Sturgess, Jason, 2018. "The Anatomy of a Credit Supply Shock: Evidence from an Internal Credit Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 53(2), pages 547-579, April.
    48. Boot, Arnoud W A & Thakor, Anjan V, 1994. "Moral Hazard and Secured Lending in an Infinitely Repeated Credit Market Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 899-920, November.
    49. Saidi, Farzad & Zaldokas, Alminas, 2016. "Patents as Substitutes for Relationships," CEPR Discussion Papers 11580, C.E.P.R. Discussion Papers.
    50. López-Espinosa, Germán & Mayordomo, Sergio & Moreno, Antonio, 2017. "When does relationship lending start to pay?," Journal of Financial Intermediation, Elsevier, vol. 31(C), pages 16-29.
    51. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-338, May.
    52. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chu, Yinxiao & Li, Zhao & Wei, Jianxing & Wu, Weixing, 2022. "A tale of two markets: Labor market mobility and bank information sharing," Journal of Economic Dynamics and Control, Elsevier, vol. 141(C).
    2. Wu, Kai & Jin, Zejun & Xu, Maobin, 2022. "Thirst for money: External guarantees and stock price crash risk," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).
    3. Xing Zhang & Mingcan Ji & Shujuan Wang, 2024. "Can Environmental, Social, and Governance Ratings Promote Green Innovation in Chinese Heavy Polluters? Perspectives from “Greening” Behaviors," Sustainability, MDPI, vol. 16(7), pages 1-23, March.
    4. Yuan, Feng & Yuan, Jingyan, 2023. "On the relationship between protection of proprietary information and transparency of accounting information," Finance Research Letters, Elsevier, vol. 58(PB).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sutherland, Andrew, 2018. "Does credit reporting lead to a decline in relationship lending? Evidence from information sharing technology," Journal of Accounting and Economics, Elsevier, vol. 66(1), pages 123-141.
    2. Ghosh, Chinmoy & He, Fan, 2023. "The impact of laws and institutions on financial contracts: Evidence from relationship lending across the world," Journal of Banking & Finance, Elsevier, vol. 148(C).
    3. Artashes Karapetyan & Bogdan Stacescu, 2014. "Information Sharing and Information Acquisition in Credit Markets," Review of Finance, European Finance Association, vol. 18(4), pages 1583-1615.
    4. Thorsten Beck & Vasso Ioannidou & Larissa Schäfer, 2018. "Foreigners vs. Natives: Bank Lending Technologies and Loan Pricing," Management Science, INFORMS, vol. 64(8), pages 3792-3820, August.
    5. Botsch, Matthew & Vanasco, Victoria, 2019. "Learning by lending," Journal of Financial Intermediation, Elsevier, vol. 37(C), pages 1-14.
    6. Keil, Jan, 2023. "Lending relationships when creditors are in control," Journal of Corporate Finance, Elsevier, vol. 79(C).
    7. Allen N. Berger & Christa H. S. Bouwman & Lars Norden & Raluca A. Roman & Gregory F. Udell & Teng Wang, 2024. "Piercing through Opacity: Relationships and Credit Card Lending to Consumers and Small Businesses during Normal Times and the COVID-19 Crisis," Journal of Political Economy, University of Chicago Press, vol. 132(2), pages 484-551.
    8. Behr, Patrick & Sonnekalb, Simon, 2012. "The effect of information sharing between lenders on access to credit, cost of credit, and loan performance – Evidence from a credit registry introduction," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 3017-3032.
    9. Ferri, Giovanni & Murro, Pierluigi, 2015. "Do firm–bank ‘odd couples’ exacerbate credit rationing?," Journal of Financial Intermediation, Elsevier, vol. 24(2), pages 231-251.
    10. Cerqueiro, Geraldo & Degryse, Hans & Ongena, Steven, 2011. "Rules versus discretion in loan rate setting," Journal of Financial Intermediation, Elsevier, vol. 20(4), pages 503-529, October.
    11. Bertrand, Jérémie & Klein, Paul-Olivier, 2021. "Creditor information registries and relationship lending," International Review of Law and Economics, Elsevier, vol. 65(C).
    12. Salvatore Capasso & Stefano Monferrà & Gabriele Sampagnaro, 2015. "The Shadow Economy and Banks’ Lending Technology," CSEF Working Papers 422, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    13. Kirschenmann, K., 2010. "The Dynamics in Requested and Granted Loan Terms when Bank and Borrower Interact Repeatedly," Other publications TiSEM 40d5005c-1626-4511-aa8a-f, Tilburg University, School of Economics and Management.
    14. Uchida, Hirofumi & Udell, Gregory F. & Yamori, Nobuyoshi, 2012. "Loan officers and relationship lending to SMEs," Journal of Financial Intermediation, Elsevier, vol. 21(1), pages 97-122.
    15. Boot, Arnoud & Hoffmann, Peter & Laeven, Luc & Ratnovski, Lev, 2021. "Fintech: what’s old, what’s new?," Journal of Financial Stability, Elsevier, vol. 53(C).
    16. Kirschenmann, K., 2010. "The Dynamics in Requested and Granted Loan Terms when Bank and Borrower Interact Repeatedly," Other publications TiSEM 300df022-4701-4773-a8b7-c, Tilburg University, School of Economics and Management.
    17. Kirschenmann, K., 2010. "The Dynamics in Requested and Granted Loan Terms when Bank and Borrower Interact Repeatedly," Discussion Paper 2010-63, Tilburg University, Center for Economic Research.
    18. Liberti, José & Sturgess, Jason & Sutherland, Andrew, 2022. "How voluntary information sharing systems form: Evidence from a U.S. commercial credit bureau," Journal of Financial Economics, Elsevier, vol. 145(3), pages 827-849.
    19. Sutherland, Andrew G., 2020. "Technology is changing lending: Implications for research," Journal of Accounting and Economics, Elsevier, vol. 70(2).
    20. Tlili, Rim, 2012. "Comment justifier la multibancarité au sein des PME ?," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/10919 edited by Etner, François.

    More about this item

    Keywords

    Bank relationship; Accounting information; Opacity; Credit access; Loan cost;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:118:y:2020:i:c:s0378426620301382. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.