Shadow seniority? Lending relationships and borrowers’ selective default

Francisco González, José E. Gutiérrez and Jose Maria Serena Garralda
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Francisco González: UNIVERSIDAD DE OVIEDO
José E. Gutiérrez: Banco de España

No 2420, Working Papers from Banco de España

Abstract: This paper analyzes how lending relationships affect firms’ incentives to default, drawing on loan-level data in Spain. We provide new evidence showing that firms first default on loans from less important (“non-main”) banks to preserve their most valuable lending relationships. Our findings also indicate that banks integrate this borrower behavior into their credit risk management because the most important banks within a borrower’s set of lending relationships recognize lower discretionary loan impairments. The results are robust to alternative difference-in-difference (DID) analyses and control for potential bank forbearance, loan characteristics, and a variety of time-varying bank and firm fixed effects.

Keywords: lending relationships; loan default; non-performing loans; loan-loss recognition; forbearance (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2024-06
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-fdg, nep-inv and nep-rmg
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https://www.bde.es/f/webbe/SES/Secciones/Publicaci ... 24/Files/dt2420e.pdf First version, June 2024 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2420

DOI: 10.53479/36695

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