Collective Relationship Banking and Private Information Monitoring in Korea
CCP Working Paper No. 06-2
35 Pages Posted: 28 Jun 2006
Date Written: October 2005
Abstract
The structure of conglomerates embedded in the strong vertical ownership network in East Asia was believed to be a driving force for the economic success but was also blamed for the recent financial crisis in Asia given the fallacy - too big to collapse. This paper introduces a notion of collective relationship banking (CRB) as a mechanism for monitoring private information and investigates the likelihood of such a banking relationship when the borrowing firms have a heterogenous vertical ownership structure using a Korean firm level panel dataset. Policy concerns are then addressed since the post-crisis corporate restructuring may create a more concentrated banking relationship with a few dominant banks.
Keywords: Collective relationship banking, vertical ownership, information monitoring, relation-based governance
JEL Classification: G21, G28, L13, L59
Suggested Citation: Suggested Citation
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