Cookies?
Library Header Image
LSE Research Online LSE Library Services

What's bank reputation worth?: the effect of fraud on financial contracts and investment

Lindahl, Huidan and Paravisini, Daniel (2011) What's bank reputation worth?: the effect of fraud on financial contracts and investment. . (Unpublished)

Full text not available from this repository.

Abstract

The risk of a reputation loss can provide an informal enforcement mechanism when contracts are incomplete. This paper provides evidence that reputation and formal incentives to monitor are substitutes in the context of syndicated credit. Monitoring in a loan syndicate is delegated to lead banks, whose formal incentives are determined by their share of the loan. Exploiting as a source of variation the reputation loss suffered by banks actively lending to firms subsequently involved in fraud scandals, we use within-firm estimators to show that monitoring banks face higher-powered contracts - higher loan shares - after a reputation loss. Despite this substitution, banks supply less credit and borrower financial policy and investment are affected, indicating that formal incentives are an imperfect substitute for reputation.

Item Type: Monograph (Working Paper)
Additional Information: © 2011 The authors
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Journal of Economic Literature Classification System: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting; Fixed Investment and Inventory Studies
Sets: Departments > Finance
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 16 Apr 2012 13:01
URL: http://eprints.lse.ac.uk/43114/

Actions (login required)

Record administration - authorised staff only Record administration - authorised staff only