Banks' lending decisions after loan acquisitions: do banks favour pre-existing relationships?

Wook Sohn and Hyosoon Choi

Applied Economics, 2009, vol. 43, issue 9, 1099-1112

Abstract: This article examines the lending decisions of Korean banks after they acquire loan portfolios from failed banks. We find that a firm's pre-existing relationships positively affect the continuation of those relationships, and that pre-existing relationships negatively impact increases in loan size, once those relationships are maintained. These results suggest that banks have a conflict of interest that comes with pre-existing lending relationships, and that bank quality does not necessarily convey the risk classes of its client firms.

Date: 2009
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DOI: 10.1080/00036840802600202

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