EconPapers    
Economics at your fingertips  
 

Does lending relationship help or alleviate the transmission of liquidity shocks? Evidence from a liquidity crunch in China

Yiyi Bai, Tri Vi Dang, Qing He and Liping Lu

No 13/2018, BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition

Abstract: We examine China’s June 2013 liquidity crunch as a negative shock to banks and analyze the wealth effects on exchange-listed firms. Our findings suggest that liquidity shocks to financial institutions negatively impact borrower performance, particularly borrowers reporting outstanding loans at the end of 2012. Stock valuations of firms with long-term bank relationships, however, outperform the market and experience smaller subsequent declines in investment than peers lacking solid banking relationships. This effect is the strongest for firms that enjoy good relations with China’s large state-owned banks or foreign banks, and weakest for firms whose connections are solely with local banks. We document a positive correlation between the stock performances of firms and the stock performances of lender banks and the likelihood of lender banks operating as net lenders in the interbank market. These results suggest that banks transmit liquidity shocks to their borrowing firms and that a long-term bank-firm relationship may mitigate the negative effects of a liquidity shock.

JEL-codes: G30 G14 G21 (search for similar items in EconPapers)
Date: 2018-05-08
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-cna and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://helda.helsinki.fi/bof/bitstream/123456789/15500/1/dp1318.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bof:bofitp:2018_013

Access Statistics for this paper

More papers in BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland. Contact information at EDIRC.
Bibliographic data for series maintained by Minna Nyman ().

 
Page updated 2021-04-03
Handle: RePEc:bof:bofitp:2018_013