The Reputation Effect:A Case Study of Credit Contracts in Transition Economies

Lionel Artige and Rosella Nicolini
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Lionel Artige: HEC,Department of Economics, Universitéde Liège, Belgium

International Journal of Finance & Banking Studies, 2015, vol. 4, issue 1, 01-17

Abstract: This paper proposes an empirical analysis ofthe role of memory in determiningthe size of credits granted by the European Bank for Reconstruction and Development(EBRD)during1991–2003.Wefirstbuild an original database frominformation associated with thenumber and contracttypesgranted by clients, after which we develop an empirical strategy forcapturingthe role of memory, namelyby definingthree different indicators to approximateeachclient’sreputation. These indicators rely on theclient’sidentity and, when available, information associated withprevious EBRD-financed investment projects. Withthe fixed-effectsestimation technique, our results unambiguously show that the value of the firstinvestment project financed by the EBRD,asaproxy for reputation,isthe most effective indicatorfor established clientsto determine the size of the credits they receiveto financefurther investments.

Keywords: International Lending; Screening Devices; Fixed-EffectsTechnique (search for similar items in EconPapers)
Date: 2015
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