Ji , Yong Seo
(2016)
Pro-Cyclicality Of Small And Medium
Enterprise (Sme) Loans According
To Financing Type Based On Purpose:
Evidence From Korean Banks.
Asian Academy of Management Journal of Accounting and Finance, 12 (2).
pp. 1-14.
ISSN 1823-4992
Abstract
An empirical analysis is conducted on the pro-cyclicality of SME loans based on purpose,
which has not been examined in previous research. In this study, the purpose of SME loans
is divided into four types: total SME loans, long-term loans for investment in equipment,
long-term loans for R&D investment, and short-term loans for working capital. The aim
of the study is to determine whether pro-cyclicality exists in the four types of loans. In
particular, it is expected that because of the high-risk weight considered in estimating
credit risk, the number of long-term loans may have decreased in the economic distress
experienced since 2006, when the Basel II accord came into effect. At that time, most banks
adopted the advanced internal rating approach to calculate borrowers' credit risks. This
study is based on the assumption that the risk weight of long-term loans is different from
that of short-term loans. The GMM model is adopted to test the pro-cyclicality of long-term
and short-term loans. The test results showed signifcant pro-cyclicality in long-term loans
for investment in equipment and R&D. Second, there was no pro-cyclicality in short-term
loans for purchasing raw materials. Third, the fnancial characteristics affecting the lending
behaviour of banks were indicators of proftability and fnancial soundness of credit. Based
on the results, effective policies are recommended, such as credit enhancement through
credit guarantees, in order to alleviate the effects of pro-cyclicality on long-term loans
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