idiosyncratic error term clustered at the host country level. ∆ˆ _lijk_ serves as our instrument that substitutes the actual change in the loan-to-asset ratio. In order to maximize the information content of our experience variables, we use both our main crisis experience stock measure as well as the alternative financial reform measure introduced in Subsection 6.2 as exogenous instruments for **crisisXP** _k_ .

We report the results of this exercise in Table 6. The first three columns (F1)–(F3) correspond, respectively, to specifications of (3) using return on assets, profitability, and cost-to-income as the dependent variable. The next three columns (F4)–(F6) populate **B** _i_ with the core set of bank-level controls (excluding the corresponding dependent variable).

Table 6: Regressions for changes in bank performance measures on changes in loanto-asset ratios

||**F1**<br>_RoA_<sup>*</sup>|**F2**<br>_Proft_<sup>_‡_</sup>|**F3**<br>_CIR_<sup>_§_</sup>|**F4**<br>_RoA_<sup>a</sup>|**F5**<br>_Proft_<sup>b</sup>|**F6**<br>_CIR_<sup>c</sup>|
|---|---|---|---|---|---|---|
|Loans to assets ratio|-0.109|-0.147|77.991|-0.100|-0.135|68.348|
||(0.07)<sup>_∗_</sup>|(0.08)<sup>_∗_</sup>|(41.74)<sup>_∗_</sup>|(0.07)|(0.08)<sup>_∗_</sup>|(41.27)<sup>_∗_</sup>|
|Bank covariates|No|No|No|Yes|Yes|Yes|
|Host FE|Yes|Yes|Yes|Yes|Yes|Yes|
|1st stage _F_ (pval.)|0.00|0.00|0.00|0.01|0.00|0.01|
|Underid. test (pval.)|0.02|0.02|0.01|0.02|0.02|0.01|
|Weak id. test (rel. bias)<br>|_<_20%|_<_20%|_<_20%|_<_20%|_<_ 20 %|_<_ 20 %|
|Overid. test (pval.)|0.70|0.71|0.76|0.71|0.76|0.73|
|2nd stage _F_ (pval.)|0.07|0.08|0.07|0.07|0.01|0.08|
|Estimation|IV|IV|IV|IV|IV|IV|
|Obs. (Host countries)|342 (60)|342 (60)|334 (58)|342 (60)|342 (60)|333 (58)|

> _†_ Heteroskedasticity and host country correlation-robust standard errors are reported in parentheses. A constant term was included in the regressions, but not reported. The underidentification test is the Kleibergen-Paap rk _LM_ , the weak identification test is the Kleibergen-Paap rk Wald _F_ , and the overidentification test is the Hansen _J_ .<sup>_∗_</sup> indicates significance at 10 percent level,<sup>_∗∗_</sup> indicates significance at 5 percent level, and<sup>_∗∗∗_</sup> indicates significance at 1 percent level.

> * The dependent variable is the difference in bank net income over total assets (RoA) between 2006 and 2009.

> _‡_ The dependent variable is the difference in bank profit before taxes over total assets (profitability) between 2006 and 2009.

> _§_ The dependent variable is the difference in bank cost-to-income ratio (CIR) between 2006 and 2009.

The results are consistent with our argument that reduced lending is associated with greater learning from experience an hence superior bank performance. Both return on assets and profitability measures enter with a negative and significant coefficient, while the coefficient for the cost-to-income ratio is significant and positive. Taken together, the estimated coefficients for _κ_ in Table 6 imply that lower lending has a positive influence on the overall performance of banks in our sample (a result consistent with our theoretical discussion in Section 2). Furthermore, there are no immediate concerns that arise regarding the relevance and coherence of the instrument set (although we note that the Kleibergen-Paap _F_ statistic does suggest, as we suspected, that the 30