Banks’ loan growth, loan quality, and social capital

Justin Yiqiang Jin, Kiridaran Kanagaretnam, Yi Liu and Ning Liu

Journal of Behavioral and Experimental Finance, 2019, vol. 21, issue C, 83-102

Abstract: Using a sample of public and private banks in the U.S. and two measures of social capital, we study how social capital relates to banks’ loan expansion strategies and loan quality. A higher loan growth rate in the banking industry usually implies lower loan standards and a higher percentage of future nonperforming loans. We find that social capital is negatively associated with banks’ loan expansion strategy (proxied by banks’ loan growth). We also document that social capital is negatively associated with growth in risky loans (proxied by real estate loans, construction loans, and commercial and industrial loans). Finally, we find that social capital is negatively associated with bank loan loss provisions, change in loan loss allowance, and change in nonperforming loans. These findings are consistent with the notion that social capital is associated with higher loan quality.

Keywords: Bank loan growth; Bank loan quality; Credit risk; Default risk; Social capital (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:21:y:2019:i:c:p:83-102

DOI: 10.1016/j.jbef.2018.11.004

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