Do enterprise-bank relationships improve market quality? Evidence from Taiwan

This study explores and analyzes the correlation between enterprise-bank relationships and market quality to mitigate information asymmetry problems in the securities market. Loans issued by domestic and foreign banks to a sample of companies listed on the Taiwan Stock Exchange are examined to determine the quality of the enterprise-banking relationships according to the dimensions of loan limit, syndicated loan guarantees, and loan interest rates. Market quality is empirically analyzed according to bid-ask spread, market depth, and transient volatility. The results reveal that improvements to the quality of enterprise-bank relationships is reflected in the quality of information in the stock market, and requires reducing information asymmetry between buyers and the sellers. The findings of this study provide insights into the implications of enterprise-bank relationships and may serve as a reference for the general public about reducing information asymmetry when making investment decisions and for competent authorities when formulating policies. (C) 2017 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.