Evergreening

Miguel Faria-e-Castro, Pascal Paul and Juan Sanchez

No 2022-14, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: We develop a simple model of concentrated lending where lenders have incentives for evergreening loans by offering better terms to firms that are close to default. We detect such lending behavior using loan-level supervisory data for the United States. Banks that own a larger share of a firm’s debt provide distressed firms with relatively more credit at lower interest rates. Building on this empirical validation, we incorporate the theoretical mechanism into a dynamic heterogeneous-firm model to show that evergreening affects aggregate outcomes, resulting in lower interest rates, higher levels of debt, and lower productivity.

Keywords: evergreening; zombie firms; bank lending; misallocation (search for similar items in EconPapers)
Pages: 77
Date: 2023-08-01
New Economics Papers: this item is included in nep-ban and nep-dge
Note: Original publication date: 10/2021. Revised publication date: 7/31/2022.
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Related works:
Journal Article: Evergreening (2024)
Working Paper: Evergreening (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:94569

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DOI: 10.24148/wp2022-14

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