Information from Relationship Lending: Evidence from China

C. Chang, G. Liao, X. Yu, Z. Ni

Research output: Working paperDiscussion paperOther research output


We study the economic role of banks’ soft information, which evolved from repeated lending relationships, in the context of loan default. Using a proprietary database from one of the largest state-owned commercial banks in China, we find that the bank’s internal credit rating scores play a significant role in default prediction. While the internal credit rating incorporates firm-specific hard information such as financial ratios, it is the soft information component of these ratings that contributes to the improvement in assessing credit quality. More importantly, the relative importance of soft information over hard information depends on the depth of the lending relationship. When evaluating loan delinquency, a strong lending relationship allows soft information to substitute for, rather than complement to, the role of hard information, especially the hard information that is subject to easy manipulation by Chinese firms.
Original languageEnglish
Place of PublicationTilburg
Number of pages40
Volume2009-10 S
Publication statusPublished - 2009

Publication series

NameEBC Discussion Paper
Volume2009-10 S


  • Debt default
  • internal credit ratings
  • credit risk
  • relationship lending
  • soft information


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