On-Site Inspecting Zombie Lending

Diana Bonfim, Geraldo Cerqueiro, Hans Degryse and Steven Ongena
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Geraldo Cerqueiro: Catolica-Lisbon SBE

No 20-16, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Banks may have incentives to continue lending to “zombie” firms in order to avoid or delay the recognition of credit losses. In spite of growing regulatory pressure, there is evidence that “zombie lending” remains widespread, even in developed countries. We exploit information on a unique series of authoritative on-site inspections of bank credit portfolios in Portugal to investigate how such inspections affect banks’ future lending decisions. We find that following an inspection a bank becomes up to 9 percentage points less likely to refinance a firm with negative equity, implying a halving of the unconditional refinancing probability. Hence, banks structurally change their lending decisions following on-site inspections, suggesting that – even in the age of reg-tech – supervisory “reg-leg” can remain a potent tool to tackle zombie lending.

Keywords: zombie lending; bank supervision (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2020-02
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-eec and nep-pay
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Citations: View citations in EconPapers (16)

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Related works:
Journal Article: On-Site Inspecting Zombie Lending (2023)
Working Paper: On-site inspecting zombie lending (2020)
Working Paper: On-site inspecting zombie lending (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2016

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