Shusen Qi (Xiamen University and Peking University) - “Time for a Change of Scenery”: Loan Conditions When Firms Switch Bank Branches

BOFIT-seminaarit

BOFIT Seminar - Shusen Qi (Xiamen University and Peking University) - “Time for a Change of Scenery”: Loan Conditions When Firms Switch Bank Branches

Co-authors: Di Gong (University of International Business and Economics), Steven Ongena (University of Zurich) and Yanxin Yu (University of International Business and Economics)

Abstract
Firms switching banks initially receive a lower loan rate. But what if firms switch branches within the same bank? Studying the population of corporate loans originated by a large commercial bank in China from 2010 to 2020, we find that when firms switch branches within bank, the switching loans carry a significantly lower spread than the comparable  nonswitching loans. After switching, the new branch further reduces the loan spreads initially, but ratchets it up afterwards, surprising evidence of the existence of intra-bank hold-up! From a welfare perspective, branches that prioritize hold-up improve their credit portfolio quality but  suffer from reduced market share. Hence there are informational frictions involved in transferring relationship-specific information even within bank.

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