Bank-firm relationship in a developing country: Evidence from Indonesia

Abstract

This study aims to examine the association between banks and firms in a loan. Our data set was pooled cross section data from 2014 to 2016, with long-term loans of firms listed in Indonesia Stock Exchange as a unit of analysis. We estimate our regression model using ordinary least square (OLS) estimator. The results revealed that lower-risk banks tend to associate with riskier but well-performing firms. Similarly, lower-capital banks tend to associate with riskier but well-performing firms. These results are quite contrary to previous studies conducted in developed countries. Lower risk banks have relationship with riskier and well-performing firms in condition that the amount of loan is small enough to be considered safe. Meanwhile, lower capital banks in this study, especially in Indonesia, may face the geographical problem which drives cost so high that makes banks charge higher interest to possibly riskier firms. This study makes contribution by providing evidence from a relative fragmented credit market. Future research on this topic is encouraged to look out more detail especially in the causality interpretation.

Keywords: {'name': 'Lending Relationship, Bank-Firm Association, Loan Matching, Relationship Lending'}

Authors & affiliations

Muhammad Fuad
Affiliation not supplied

Suad Husnan
Affiliation not supplied

Deposited references

Supplied references, not a list of publications citing this article.

DOI: 10.1111/j.1540-6261.2011.01670.x

DOI: 10.1016/j.jfineco.2014.11.003

DOI: 10.1086/262109

DOI: 10.1016/j.jfineco.2004.06.003

DOI: 10.1016/S0378-4266(98)00033-8

DOI: 10.1093/revfin/12.3.0579

DOI: 10.1093/rfs/hhw041

DOI: 10.1023/A:1007907427042

Brigham, E. F., & Ehrhardt, M. C. (2014). Financial Management - Theory and Practice 14th Edition. Cengage Learning.

DOI: 10.1016/j.jfi.2008.06.003

DOI: 10.1093/rfs/hhp074

DOI: 10.1093/rfs/hhp074

Dassatti, C., Dassatti, C., & Lluberas, R. (2021). Loan Evergreening Through Banks’ Lenses?: Evidence from Credit Product-Level Data Centre for Banking Research Working Paper Series Loan evergreening through banks ’ lenses?: Evidence from credit product-level data ?. October.

DOI: 10.1080/00036846.2016.1170934

DOI: 10.2307/3666389

DOI: 10.1111/0022-1082.00243

DOI: 10.1111/0022-1082.00296

DOI: 10.1257/aer.91.2.422

DOI: 10.1086/319552

DOI: 10.21512/jafa.v6i1.835

DOI: 10.1111/jofi.12421

DOI: 10.1016/j.jempfin.2012.08.005

DOI: 10.1016/j.jbankfin.2010.11.003

DOI: 10.1016/j.jbankfin.2015.02.008

DOI: 10.3934/QFE.2019.1.53

Modigliani, F., & Miller, M. H. (1963). Corporate Income Taxes and the Cost of Capital?: A Correction. The American Economic Review, 53(3), 433–443.

DOI: 10.1111/j.1540-6261.2012.01767.x

DOI: 10.1257/0002828054825691

DOI: 10.2307/2118445

DOI: 10.1111/j.1540-6261.1994.tb04418.x

DOI: 10.1111/j.1540-6261.2008.01359.x

DOI: 10.1109/TEM.2009.2013832

DOI: 10.1111/jofi.12604

Stiglitz, B. J. E., & Weiss, A. (1981). Credit Rationing in Markets with Imperfect Information. American Economic Association, 71(3), 393–410.

DOI: 10.1016/j.ribaf.2014.04.001

DOI: 10.2307/2657252

DOI: 10.1007/978-1-4615-5027-3_25

DOI: 10.1002/smj.241

DOI: 10.1080/16081625.2021.1976226

DOI: 10.1016/j.ribaf.2017.07.016