Related Lending and Economic Performance: Evidence from Mexico

Bank discrimination, holding bank ownership, and economic consequences: Evidence from China

“…Consistent with H1, we predict that if related lending is important for non-SOEs, then we should see them experience a direct benefit of related lending: interest reduction (La Porta et al, 2003;Charumlind et al, 2006;Maurer and Haber, 2007). Therefore, we hypothesize the following:…”

“…Charumlind et al (2006) find that firms with bank connections have greater access to long-term debt and need less collateral. Using data from Mexico, Maurer and Haber (2007) argue that banks tend to engage in related lending because the information asymmetry is low between the bank and the firms, which are also shareholders of the bank. In China, holding an ownership stake of more than 5% in a bank can entitle the holding firm to assign representatives to the bank's board of directors.…”

Mexico’s experiments with bank privatization and liberalization, 1991–2003

“…The first occasion was in 1915-16, when President Venustiano Carranza expropriated the banks in order to finance his military campaign against Pancho Villa and Emiliano Zapata during the Mexican Revolution. The ''intervened'' banks, stripped of their liquid assets, were later returned to the bankers in the early 1920s (Maurer, 2002;Haber et al, 2003, Chapter 4). The second occasion occurred in 1982, when Ló pez Portillo expropriated the banks in an attempt to blame the countryÕs desperate economic situation on the countryÕs bankers, rather than on his governmentÕs mismanagement of the economy.…”

“…Second, shareholders developed mechanisms to monitor directors. Third, because there was no deposit insurance, depositors policed banks by withdrawing deposits from risky banks (Maurer, 2002;Del Angel-Mobarak, 2002;Maurer and Haber, 2004). 14 This puts MexicoÕs experience in the mid-range of LDC bank bailouts, which have ranged from 5 to 50% of GDP.…”

Related lending and banking development

“…A large body of scholarship all points to the same conclusions: financial development exerts an independent, causal effect on growth; and banks are a crucial piece of the overall process of financial development -indeed, they typically dominate securities markets during the early stages of economic development. This work includes historical case studies of developed economies (De Vries & van der Woude, 1997;Neal, 1990;Rousseau & Sylla, 2004;Rousseau & Wachtel, 1998;Sylla, 1969Sylla, , 2007; cross-country regressions (Beck, Levine, & Loayza, 2000;King & Levine, 1993a, 1993bLevine & Zervos, 1998); time series analyses of regions within countries (Black & Strahan, 2002;Dehejia & Lleras-Muney, 2007;Guiso, Sapienza, & Zingales, 2004;Jayartne & Strahan, 1996); and time series analysis of industries (Beck & Levine, 2002;Cetorelli & Strahan, 2006;Fisman & Love, 2004;Haber, 1991;Maurer & Haber, 2007;Rajan & Zingales, 1998a;Wurgler, 2000). There are, of course, scholars who are not persuaded by this evidence, and, in light of the recent financial crisis, view the growth of credit as pernicious.…”