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Article:
Is It a Heavy Log that
Broke the Camel's Back? Authors: Chien-An Wang and Chin-Oh Chang Start Page: 38 Abstract:
Since the 1997 Asian financial
crisis, the monetary authority of Taiwan decreased the interest rate nine
times and had every intention to maintain a loose monetary policy. However,
the lending amounts to the construction industry decreased much more sharply
in spite of an increased monetary supply. Hence, the loose monetary policy
has not reduced the financial constraints of the construction firms in
Taiwan. In this paper, we investigate that the credit channel of monetary
policy how to works at the Taiwan's construction industry. We explain the
reasons for financial constraints in the construction industry in Taiwan.
Construction firms whose information is considerably opaque, are likely to
be viewed as "lemons", which accounts for the credit crunch policy of
banking lending to these construction firms. Two strands of evidence support
this view. First, the borrowing terms for the construction industry have
been more restrictive than those for other industries firms during the same
period of financial difficulty. Second, we determine that such financial
constraints vary systematically within different industry groups. The
results substantiate that construction firms retain more internal funds for
future investment, and the sign of the liquidity coefficient is significant
in their investment function. The evidence shows construction firms bear
most of the reductions in bank loan supply, and that they are more
bank-dependent. |
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