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Unformatted text preview: ted to not only ﬁnancial institutions but also the the power structure (Khanna
(2000), Bongini et al. (2000) and Chui et al. (2000)). It is also often the case that they are
Close ties to banks beneﬁt ﬁrms in several ways. For example, the strong relationships
with banks might provide preferential treatment and more access to funding. Weinstein and
Yafeh (1998) ﬁnd that Japanese manufacturing ﬁrms with strong bank relationships during the
period 1977-86 tend to use more capital than independent ﬁrms in the same industry when their
operating cash ﬂow declined.
There is extensive anecdotal evidence that strong ties with banks enables ﬁrms connected to
inﬂuential families in Thailand to receive funding easily ((Thanapornpun (1999)). Interestingly,
there are numerous instances of ﬁnancial institutions that went into ﬁnancial distress on account
of concentrating their loans to only a few business groups, which eventually defaulted. For
example, in 1996 the Bangkok Bank of Commerce granted a very large amount of loans to ﬁrms
that were aﬃliated to four families, namely Rajan Pillai, Adnan Khashoggi, Rages Sakdina 10 and Suchat Thanchareon. The bank went into ﬁnancial distress shortly afterward and was
subsequently recapitalized by the Financial Institutions Development Fund (FIDF). The FIDF
is the government agency that is responsible for rehabilitating ﬁnancially distressed ﬁnancial
institutions. Similarly, in 1986 the Krung Thai bank had also allocated a large amount of
loans to the Srikrungwattana group, Pol Rengprasertwit and Sura Chansrichawala families
Close ties to banks also provide opportunities for ﬁrms to obtain economic rents created by
various regulations. In many emerging economies, the government encourages banks to lend
to big business groups or speciﬁc industries, such as in export oriented sectors. For example,
in Thailand banks were dictated to provide lower than the market rate loans to agri-business
industry in the 1980s. Anecdotal evidence exists of ﬁrms with close ties with banks receiving
most of these loans. In Korea until the end of the 1980s, banks were dictated by the government
to lend to large family-owned business groups (Chaebols ) at low interest rates. Lee et al. (1999)
ﬁnd that Chaebol aﬃliated ﬁrms are in fact more levered than stand alone ﬁrms.
To identify the country’s most inﬂuential families, we use the ranking of group ﬁrms in
Thailand done by Suehiro (2000). This ranking is done based on sales in 1994. Suehiro (2000)
collected accounting and ownership data of companies in each group from the Ministry of
Commerce. In addition to the database compiled from the Ministry of Commerce, he used
Tara Siam Business Information (1996) as a reference for additional information on company
For the “inﬂuential families” to be a good indicator of the strong connections with banks,
the proxy for the “inﬂuential families” should include the most well known and wealthy families. Accordingly, we de...
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This document was uploaded on 02/28/2014 for the course ECONOMICS fn314 at Harvard.
- Fall '13