Courtesy calls for reciprocity: the effect of purchasing financial products from banks on firm borrowing

Bin Wu, Lijing Tong, Min Zhang and Xin Wang

Asia-Pacific Journal of Accounting & Economics, 2022, vol. 29, issue 3, 761-792

Abstract: Using data of Chinese listed firms, we find that firms that purchase financial products from banks are more likely to obtain loans from these banks than firms that do not buy. The probability is 52% and 58% higher for the three-year and one-year look-back window, respectively. This phenomenon is more pronounced for borrowers who are non-SOE or low-risk ones. Our findings reveal that by purchasing financial products from banks, firms can build relationship with them and consequently obtain loans more easily. Our paper contributes to the extant literature on the channels and mechanisms of relationship building between banks and firms.

Date: 2022
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DOI: 10.1080/16081625.2020.1828103

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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