Moral Hazard and Secured Lending in an Infinitely Repeated Credit Market Game

Boot, Arnoud W. A.; Thakor, Anjan V.

doi:10.2307/2527003

Cited by 655 publications

(402 citation statements)

References 19 publications

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“…Firms that decide to pursue a relationship with a bank may benefit, since a good payment record will help to establish the firm's reputation, will reduce the need for monitoring, and will lead to improvements in future loan contract terms. (For some examples of the literature supporting this point, see Diamond, 1991;Rajan, 1992;and Boot and Thakor, 1994). However, relationship lending does not come without a cost.…”

Section: The Role Of Financial Accounting In Determining the Availabimentioning

confidence: 99%

The role of information and financial reporting in corporate governance and debt contracting

Armstrong

Guay

Weber³

2010

Journal of Accounting and Economics

1,123

350

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Abstract:We review recent literature on the role of financial reporting transparency in reducing governance-related agency conflicts among managers, directors, and shareholders, as well as in reducing agency conflicts between shareholders and creditors, and offer researchers some suggested avenues for future research. Key themes include the endogenous nature of debt contracts and governance mechanisms with respect to information asymmetry between contracting parties, the heterogeneous nature of the informational demands of contracting parties, and the heterogeneous nature of the resulting governance and debt contracts. We also emphasize the role of a commitment to financial reporting transparency in facilitating informal multi-period contracts among managers, directors, shareholders, and creditors.Keywords: financial accounting; corporate governance; board structure; contracting; executive compensation; debt contracts; informal contracts We thank the following for helpful comments and suggestions:

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Section: The Role Of Financial Accounting In Determining the Availabimentioning

confidence: 99%

The role of information and financial reporting in corporate governance and debt contracting

Armstrong

Guay

Weber³

2010

Journal of Accounting and Economics

1,123

350

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“…During the relationship, the bank privately observes information about the customer which can foster flexibility in loan contracts (Boot and Thakor 1994;Von Thadden 1995) and favorable contract terms for the customers (e.g. lower interest rates or less collateral).…”

Section: Literaturementioning

confidence: 99%

Banking Products: You Can Take Them with You, So Why Don’t You?

Cruijsen

Diepstraten

2017

J Financ Serv Res

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Policymakers around the world call for more competition in the banking sector. One prerequisite to achieving this is customer mobility. Despite its policy relevance, surprisingly little is known about consumers' bank switching behaviour. We show that the principal reasons to stay at one's bank are a good bank-customer relationship, practical barriers, and the perception that there is not much benefit in switching. Moreover, we find that the reported propensity to switch varies across banking products. For the main current and savings accounts, this propensity is most strongly related to the bank-customer relationship, while for mortgage loans it is especially linked to switching experience. These findings have important implications for antitrust policy; they provide an argument against using a cluster-based legal standard for the analysis of competition and in favour of a disaggregated approach. Regarding the effectiveness of hypothetical policy initiatives to lower switching barriers, we find that the reported switching propensity with current accounts is higher in the case of account number portability, while more knowledge of the existing switching service has no significant effect. Lastly, scenario analysis shows that a policy of allowing new foreign banks to enter the savings market is less promising for enhancing mobility than a policy that increases the number of domestic players.

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“…In addition, the authors also reported the need for collateral to decrease as the duration of the bank-borrower relationship increases. Boot and Thakor (1994) reported similar results and explained that a longer term bank-borrower relationship enables the banks to efficiently evaluate the borrower over time and reduces the use of collateral. Chakraborty and Hu (2006) also found a negative relationship between the firm's age and the incidence of collateral.…”

Section: Collateralmentioning

confidence: 58%

An empirical analysis of the effects of market response to bank loan announcements in Hong Kong stock market

Qing¹,

Gan

Li³

2011

J Bank Regul

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of a thesis submitted in partial fulfillment of the requirements for the Degree of M.C.M An Empirical Analysis of the Effects of Market Response to Bank Loan Announcements in the Hong Kong Stock Market Qing ChenThis study will validate several key results from previous studies of bank loan announcement effects by using the data from Hong Kong market following the 1997 Asian crisis. Banks are believed to play a unique role in financial market which could effectively reduce the problem of information asymmetry and moral hazard. Banks could access borrowers' inside information which is not available to other participants.Thus bank loan announcements convey valuable information to the market, and market response of the stock price should be positive. However, because of the significant reform in both financial market and information market, the valuation of bank loan announcement conveyed need to be reconsidered. This study investigates whether banks are still "unique" in the financial market or whether they are like middlemen between borrowers and investors. Data used in this study is collected from the Hong Kong Stock Exchange Index, and a standard event study with the market model is applied in the research to conduct the empirical analysis.The results suggest bank loan announcements are associated with significantly higher positive abnormal returns than non-bank loan announcements. Based on the market model of event study, market response is found to be significantly positive for loan syndication, short maturity loan and borrower's debt ratio, and negatively related to II firm size and loan size. Bank loans with refinancing and capital expenditure and no specific purpose have significantly higher positive abnormal returns, and borrowers with property and industrial industry type have more significant positive abnormal returns compared to other industry type. The findings also suggest the Hong Kong stock market is efficient in both strong and semi-strong form for bank loan announcements. A strong evidence of information leakage problem is found for nonbank loan announcements. The results are generally consistent with the existing literature.Key Words: bank loan announcements, abnormal returns, information asymmetry, syndication, loan size, loan maturity, loan purpose, firm size, industry type, debt ratio, market efficiency. III ACKNOWLEDGEMENTS

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Moral Hazard and Secured Lending in an Infinitely Repeated Credit Market Game

Cited by 655 publications

References 19 publications

The role of information and financial reporting in corporate governance and debt contracting

The role of information and financial reporting in corporate governance and debt contracting

Banking Products: You Can Take Them with You, So Why Don’t You?

An empirical analysis of the effects of market response to bank loan announcements in Hong Kong stock market

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