Related Lending

Rafael La Porta (), Florencio Lopez-de-Silane and Guillermo Zamarripa
Authors registered in the RePEc Author Service: Florencio Lopez-de-Silanes ()

No 8848, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In many countries, banks lend to firms controlled by the bank?s owners. We examine the benefits of related lending using a newly assembled dataset for Mexico. Related lending is prevalent (20% of commercial loans) and takes place on better terms than arm?s-length lending (annual interest rates are 4 percentage points lower). Related loans are 33% more likely to default and, when they do, have lower recovery rates (30% less) than unrelated ones. The evidence supports the view that rather than enhance information sharing, related lending is a manifestation of looting.

JEL-codes: G3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mfd
Date: 2002-03
Note: CF IFM
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Related works:
Working Paper: Related Lending (2002)
Journal Article: Related Lending (2003)
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