Thursday, April 14, 2016 | 2:00pm-3:30pm | Room 335, HSBC Business School Building

Abstract

Using an event study of the interbank liquidity crunch in June 2013 in China, we investigate how lending relationships affect the market reactions of the borrowing firms during the interbank liquidity crunch. We find that firms with lending relationships with banks (i.e. firms whose largest lender of long-term loans are banks) outperform others in the stock market. Lending relationships with local banks are associated with lower firm CARs, while lending relationships with big 4 banks do not have any significant effect. We also find a positive correlation between firms’ stock performances and their banks’ stock performances, as well as banks’ liquidity in interbank market, in particular for those firms whose largest lenders of long-term loans are big 4 banks.