Related Lending and Banking Development

Does related lending have positive or negative effects on the development of banking systems? This paper analyzes a unique cross-country data set covering 74 countries from 1990 to 2007, and finds that related lending, on average, does not have any effect on the growth of credit. The authors do find, however, that there are conditional relationships: related lending tends to retard the growth of banking systems when rule of law is weak, while it tends to promote the growth of banking systems when rule of law is strong. They also find that related lending appears to be associated with looting when banks are owned by non-financial firms, but that it does not when non-financial firms are owned by banks. The results indicate that whether related lending is positive or pernicious depends critically on the institutional context in which it takes place; there is no single "best policy" regarding related lending. These findings are robust to alternative specifications, including instrumental variable regressions.

Bibliographic Details

Main Authors:	Cull, Robert, Haber, Stephen, Imai, Masami
Language:	English
Published:	2011-02-01
Subjects:	AFFILIATE, ALLOCATION OF CAPITAL, AMOUNT OF LOANS, ASSET MANAGEMENT, ASYMMETRIC INFORMATION, BALANCE SHEET, BANK BRANCH, BANK CREDIT, BANK DEPOSITS, BANK LENDING, BANK OWNERS, BANK POLICY, BANK REGULATION, BANK REGULATIONS, BANK RESTRUCTURING, BANKING CRISES, BANKING CRISIS, BANKING LAW, BANKING MARKET, BANKING SECTOR, BANKING SECTOR DEVELOPMENT, BANKING SECTORS, BANKING SYSTEM, BANKING SYSTEM STABILITY, BANKING SYSTEMS, BANKRUPTCY, BANKS, BARRIER TO ENTRY, CAPITAL ALLOCATION, CAPITAL MARKET, CAPITAL MARKETS, CAPITALIZATION, CHECKS, COMPARATIVE ADVANTAGE, COMPARATIVE ECONOMICS, CONFLICTS OF INTEREST, CORPORATE FINANCE, CORPORATE GOVERNANCE, CORRUPTION, CREDIBILITY, CREDIBILITY PROBLEM, CREDIT AVAILABILITY, CREDIT EXPANSION, CREDIT GROWTH, CRISIS COUNTRIES, DEPENDENT, DEPOSIT, DEPOSIT INSURANCE, DEPOSIT INSURANCE AGENCY, DEPOSIT INSURANCE COVERAGE, DEPOSIT MONEY BANKS, DEPOSITOR, DEPOSITORS, DEPOSITS, DEREGULATION, DEVELOPING COUNTRIES, DEVELOPMENT POLICY, DIVIDENDS, DUMMY VARIABLE, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC HISTORY, ECONOMIC PERFORMANCE, ECONOMICS, ENTREPRENEURSHIP, EQUITY CAPITAL, EXPLICIT DEPOSIT INSURANCE, EXTERNAL AUDITORS, EXTERNAL FINANCE, FINANCIAL CRISES, FINANCIAL CRISIS, FINANCIAL DEVELOPMENT, FINANCIAL FRAGILITY, FINANCIAL INSTITUTIONS, FINANCIAL INTERMEDIATION, FINANCIAL MARKETS, FINANCIAL SECTOR, FINANCIAL STRUCTURE, FINANCIAL STUDIES, FINANCIAL SUPPORT, FINANCIAL SYSTEM, FRAUD, GDP, GDP PER CAPITA, GOVERNMENT INTERVENTION, GOVERNMENT OWNERSHIP, GROWTH RATE, INDUSTRIALIZATION, INFLATION, INFLATION RATE, INFORMATION ASYMMETRIES, INSIDER LENDING, INSOLVENT, INSTITUTIONAL ENVIRONMENT, INSTITUTIONAL REFORM, INSTRUMENT, INTERNAL ORGANIZATIONAL STRUCTURE, INTERNATIONAL BANK, INTERNATIONAL CAPITAL, INTERNATIONAL CAPITAL MARKETS, INTERNATIONAL FINANCIAL INSTITUTIONS, INTERNATIONAL FINANCIAL STATISTICS, INVESTING, INVESTMENT CHOICES, JUDICIAL SYSTEMS, LAWS, LEGAL ACTION, LENDER, LESS DEVELOPED COUNTRIES, LIABILITY, LIQUIDITY, LOAN, LOAN REPAYMENT, LOCAL MARKETS, LONG-TERM FINANCE, MACROECONOMIC CONTROLS, MACROECONOMIC VARIABLES, MACROECONOMICS, MARKET DISCIPLINE, MARKET STRUCTURE, MERGERS, MINORITY SHAREHOLDERS, OWNERSHIP RIGHTS, OWNERSHIP STRUCTURE, POLITICAL ECONOMY, POLITICAL INSTITUTIONS, POSITIVE COEFFICIENT, POSITIVE COEFFICIENTS, POSITIVE EFFECTS, PRIVATE CREDIT, PROPERTY RIGHTS, PROPERTY RIGHTS PROTECTION, REAL GDP, REGULATORY AUTHORITIES, REGULATORY RESTRICTIONS, REORGANIZATION, RULE OF LAW, SECURITIES, SECURITIES MARKETS, SHAREHOLDER, SHAREHOLDER RIGHTS, SOCIAL COHESION, STOCK MARKET, STOCK MARKET CAPITALIZATION, STOCK MARKETS, SUPERVISORY AGENCY, SUPERVISORY AUTHORITIES, SUPERVISORY AUTHORITY, SUPERVISORY POWER, SUPERVISORY POWERS, SYSTEMIC CRISIS, TRANSITION ECONOMIES, TREASURY, UNIVERSAL BANKING, VALUE ADDED, WEALTH,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110217083521 https://hdl.handle.net/10986/3337
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