 “Forgive but Not Forget”: The Behavior of Relationship Banks When Firms Are in DistressLarissa Schäfer Review of Finance, 2019, vol. 23, issue 6, 1079-1114 Abstract: Do relationship banks help firms in distress? Combining a survey-based measure of relationship lending with unique credit registry data, I examine the effect of relationship lending on loan performance. I find that the same firm in the same time period is more likely to become delinquent on a relationship-based loan relative to a transaction-based loan. Higher delinquencies do not, however, result in more defaults or less loan recoveries for relationship banks when loans mature relative to transactional banks. Conditional on past delinquencies, relationship banks are more likely to offer follow-up financing and extract rents. Consistent with theory, relationship banks tolerate temporarily bad results, yet extract rents and secure future business in return. The paper provides new empirical evidence for rent extraction by relationship banks that have been lenient to distressed firms in the past. Keywords: Bank financing; Relationship lending; Loan performance; Firm distress; Liquidity insurance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:oup:revfin:v:23:y:2019:i:6:p:1079-1114. Ordering information: This journal article can be ordered from Access Statistics for this article Review of Finance is currently edited by Marcin Kacperczyk More articles in Review of Finance from European Finance Association Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC. |
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