Network-Motivated Forbearance Lending

Yoshiaki Ogura, Ryo Okui and Yukiko Umeno Saito ()
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Yukiko Umeno Saito: Faculty of Political Science and Economics, Waseda University, Tokyo 169-8050, Japan; and Research Institute of Economy, Trade, and Industry, Tokyo 100-8901, Japan

Management Science, 2025, vol. 71, issue 11, 9766-9783

Abstract: This paper develops a theoretical framework for network-motivated forbearance lending, or forbearance lending to influential buyers and sellers in a supply network. Because dominant banks in a financial market internalize the negative externality of an influential firm’s exit, they may continue to refinance a loss-making influential firm at an interest rate lower than the prime rate. This type of forbearance lending is distinct from other strategies such as evergreening or gambling for resurrection, and we show that network-motivated forbearance lending is independent of the financial soundness of the bank and can be welfare improving. To evaluate the extent of the externality of an influential seller or buyer, we propose two measures: the price influence coefficient and the demand influence coefficient, respectively.

Keywords: supply network; influence coefficient; forbearance; bailout (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:71:y:2025:i:11:p:9766-9783

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