The Ability of Banks to Lend to Informationally Opaque Small Businesses

Abstract

We test hypotheses about the effects of bank size, foreign ownership, and distress on lending to informationally opaque small firms using a rich new data set on Argentinean banks, firms, and loans. We also test hypotheses about borrowing from a single bank versus multiple banks. Our results suggest that large and foreign-owned institutions may have difficulty extending relationship loans to opaque small firms. Bank distress appears to have no greater effect on small borrowers than on large borrowers, although even small firms may react to bank distress by borrowing from multiple banks, raising borrowing costs and destroying some relationship benefits.

'When the Cat's Away the Mice Will Play': Does Regulation at Home Affect Bank Risk Taking Abroad?

“…Nevertheless, one potential hypothesis explaining our results is that home-country regulation which reduces banks'pro…tability in their primary domestic market, either by lowering their charter value or by restricting them from engaging in certain activities, leads banks to loosen their lending standards and take on more risk abroad. This result could be viewed as qualifying the …ndings widely reported in the literature that foreign banks "cherry pick" the borrowers that they lend to in host countries (e.g., Berger, Klapper, and Udell, 2001;Gormley, 2010;Mian, 2006; see Degryse, Havrylchyk, Jurzyk, and Kozak, 2009, for a recent survey). Our …ndings suggest that this phenomenon may depend on the nature of home-country regulation.…”

“…The auditor performs risk assessment procedures to obtain an understanding of the entity and its environment, including its internal control, and so audited risk includes detection risk, control risk, and inherent risk. 10 Recent evidence suggests that many …rms (especially SMEs) choose not to …le a …nancial report when in distress, implying that …rms which do not have their accounts veri…ed by an external auditor, are more likely to default (Jakobson, Linde, and Roszbach, 2012). As a consequence, information opacity also captures an important dimension of ex post risk.…”

A Second-Order Factor Gender-Measurement Invariance Analysis of Financial Exclusion in Ilorin, Nigeria

“…They are either viewed as not bankable or creditworthy [8]. Therefore, the banks charge high interests in order to discriminate among; and have enough cover on their transaction with this group of borrowers [9], [10]. The moral hazard problem the lenders face is a reflection of their susceptibility to adverse selection of potential clients.…”

Home Bank Intermediation of Foreign Direct Investment

“…Mixed models such as export-platform FDI occur if multinationals use horizontal FDI to sell in the host market and in neighboring countries in addition to the home market (Ekholm et al, 2007), while export-fragmentation FDI allows fragmentation of the production process by producing through intermediaries in different countries, and shipping the final good back to the parent or another country (Yeaple, 2003 suggested by the fact the even banks face these costs (Mian, 2006). Also Berger et al (2001) find that South American foreign banks are more likely to lend to small Argentine businesses than other foreign banks. Arguably, these effects should be stronger for non-financial MNEs which do not specialize in overcoming agency and information transaction costs.…”