On-site inspecting zombie lending

Diana Bonfim and Geraldo Cerqueiro
Authors registered in the RePEc Author Service: Hans Degryse and Steven Ongena

Working Papers from Banco de Portugal, Economics and Research Department

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.

JEL-codes: G21 G32 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ban and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
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:ptu:wpaper:w202001

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