Hahm, Joon-Ho and Shin, Kwanho (2006): Complementarity among International Asset Holdings: Do Banks Have a Special Role?
Download (269kB) | Preview
This paper studies the pattern and structure of cross-border bilateral financial asset holdings. By utilizing an extended dataset and employing a variant of gravity models, we find strong evidence for the presence of complementarities among bank loans, shortand long-term debts, and portfolio equity holdings. The complementarities can be explained by common factors of standard gravity models such as economy size, state of development, and information cost proxies, as well as bilateral trade in goods and services. However, we also find the presence of a direct channel of complementarities among financial asset holdings that cannot be explained by these gravity factors. We proceed to investigate whether the complementarities can be characterized by the models that predict a special role of banks in alleviating information asymmetry. We find supporting evidence for this hypothesis in that international bank lending tends to increase the volume of portfolio asset holdings. This acceleration effect of bank lending is stronger for destination countries with higher degrees of ‘law and order,’ which suggests that cross-border bank lending may not lead to capital market integration, despite reduced information cost, if there is no appropriate infrastructure to facilitate portfolio investment. By investigating the structure of bilateral asset holdings, we also find positive evidence for the information role of banks. The share of bank lending decreases with increasing state of development of destination countries measured by per capita GDP and human capital accumulation, but increases with increasing distance, suggesting that information cost may play an important role in determining the structure of cross-border asset holdings.
|Item Type:||MPRA Paper|
|Original Title:||Complementarity among International Asset Holdings: Do Banks Have a Special Role?|
|Keywords:||Cross-border asset holdings; Financial integration; Bank lending|
|Subjects:||F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration
F - International Economics > F1 - Trade > F15 - Economic Integration
|Depositing User:||Kwanho Shin|
|Date Deposited:||08. Nov 2006|
|Last Modified:||05. May 2015 23:55|
Barro, R. J. and Lee, J. W. (2001), “International Data on Educational Attainment: Updates and Implications,” Oxford Economics Papers, Vol. 53, 541-563. Buch, C. M. (2002), “Are Banks Different? Evidence from International Data,” International Finance, Vol. 5, No. 1, 97-114. Diamond, D. (1984), “Financial Intermediation and Delegated Monitoring,” Review of Economic Studies, Vol. 51, 393-414. Diamond, D. (1991), “Monitoring and Reputation: The Choice between Bank Loans and Privately Placed Debt,” Journal of Political Economy, Vol. 99, 689-721. Evenett, S. J. and Keller, W (2002), "On Theories Explaining the Success of the Gravity Equation," Journal of Political Economy, Vol. 110, No. 2, 281-316. Frankel, J. (1997), Regional Trading Blocs, Institute for International Economics: Washington DC. Ghosh, S. and Wolf, H. (1999), “The Geography of Capital Flows,” in S. Edwards, ed., Capital Inflows to Emerging Markets, University of Chicago Press. Hahm, J. H. and Kang, J. K. (2005), “SME Financing and Bank Lending: A Study on the Innovative SMEs,” Quarterly Economic Analysis, Vol. 11, No. 3, pp. 87-119, Bank of Korea. Hoshi, T., Kashyap, A., and Scharfstein, D. (1993), “The Choice between Public and Private Debt: An Analysis of Post-deregulation Corporate Financing in Japan,” NBER working paper no. 4421. Hull, L. and Tesar, L. (2001), “The Structure of International Capital Flows,” in H. Siebert (ed.) The World’s New Financial Landscape: Challenges for Economic Policy, Michigan: Michigan University Press, 87-109. James, C. (1987), “Some Evidence on the Uniqueness of Bank Loans,” Journal of Financial Economics, Vol. 19, 217-235. Kawai, M. and Liu, L. G. (2001), “Determinants of International Commercial Bank Loans to Developing Countries,” mimeo, Asian Development Bank Institute. Kim, S., Lee, J. W. and Shin, K. (2005), “Regional and Global Financial Integration in East Asia,” mimeo, Korea University. La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R. W. (1997), “Legal Determinants of External Finance,” Journal of Finance, Vol. 52, 1131-1150. La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R. W. (1998), “Law and Finance,” Journal of Political Economy, Vol. 106, 1113-1155. Lane, P. R. and Milesi-Ferretti, G. M. (2001), “External Capital Structure: Theory and Evidence,” in H. Siebert ed. The World’s New Financial Landscape: Challenges for Economic Policy, Michigan University Press, 247-84. Lummer, S. L. and McConnell, J. (1989), “Further Evidence on the Bank Lending Process and the Capital Market Response to Bank Loan Agreements,” Journal of Financial Economics, Vol. 25, 99-122. Martin, P. and Rey, H. (1999), “Financial Supermarkets: Size Matters for Asset Trade,” CEPR DP 2232. Portes, R. and Rey, H. (2000), “The Determinants of Cross-border Equity Flows: The Geography of Information,” Center for International and Development Economics Research working paper, UC Berkeley. Rose, A. and Spiegel, M. (2004), “A Gravity Model of International Lending: Trade, Default and Credit,” IMF Staff Papers 51, 50-63. Shin, K. and Yang, D. Y. (2006), “Trade and Financial Integration: Do They Reinforce Each Other?, a paper presented at the KIEP and SNU seminar, China and Emerging Asia: Reorganizing the Global Economy, May 11-12, 2006. Stiglitz, J. and A. Weiss (1983), “Incentive Effects of Terminations: Applications to Credit and Labor Markets,” American Economic Review, Vol. 73, 912-927. Tesar, L. and Werner, I. (1995), “Home Bias and High Turnover,” Journal of International Money and Finance, Vol. 14, 467-492.