Embeddedness and capital markets: Bank financing of businesses |
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| Institution: | 1. School of Materials Science and Engineering, Henan Polytechnic University, Jiaozuo 454003, China;2. Key Laboratory of Disaster Prevention and Structural Safety of China Ministry of Education, School of Civil Engineering and Architecture, Guangxi University, Nanning, 530004, China;3. Key Laboratory for Green & Advanced Civil Engineering Materials and Application Technology of Hunan Province, College of Civil Engineering, Hunan University, Changsha, 410082, China |
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| Abstract: | The article examines the social and economic dimensions of capital markets, particularly the effects of bank and capital market structure; lending criteria and bank policies; and demand for credit, on bank financing of businesses. A critical problem in most capital markets is that lenders have inadequate information to assess the risk and creditworthiness of loan applicants. We find that many bankers continue to use assessments of character as a signal of the potential borrower's creditworthiness. Banking deregulation limits the range of signals available to lenders and therefore may have detrimental consequences for banks and local economies. |
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