活動內容

Topic

Bad Apples and Loan Pricing in Affected Industries: Evidence from a Corporate Fundraising Scandal

Speaker

Tri Vi Dang

Lecturer in Economics, Columbia University

Abstract

When some firms misbehave, how do banks respond and do bad apples adversely affect their peer group? We use a corporate fundraising scandal in Anyang, China as a natural experiment and document that observed loan pricing is consistent with a theory of collateralized lending and costly screening. Banks increase both interest rates and collateral requirements as well as shorten the maturities of loans for firms in affected industries and with higher industry scandal index. The averse spillover effects of bad apples are mitigated when banks have more soft information about borrowers measured by closer geographic distance. The fundraising scandal lasts for five quarters and thereafter bank loans characteristics revert to the pre-scandal level. This scandal has real effects on non-misbehaving firms' performances.