Moral hazard and strategic default: evidence from Greek corporate loans

Ioannis Asimakopoulos, Panagiotis K. Avramidis, Dimitrios Malliaropulos and Nickolaos G. Travlos
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Panagiotis K. Avramidis: ALBA Graduate Business School at the American College of Greece
Nickolaos G. Travlos: ALBA Graduate Business School at the American College of Greece

No 211, Working Papers from Bank of Greece

Abstract: Using a unique dataset of corporate loans of 13,070 Greek firms for the period 2008-2015 and an identification strategy based on the internal credit ratings of banks, we provide evidence that one out of six firms with non-performing loans are strategic defaulters. Furthermore, we investigate potential determinants of firms’ behavior by relating the probability of strategic default to a number of firm characteristics such as size, age, liquidity, profitability and collateral value. We provide evidence of a positive relationship of strategic default with outstanding debt and economic uncertainty and a negative relationship with the value of collateral. Also, profitability and collateral can be used to distinguish the strategic defaulters from the financially distressed defaulters. Finally, we find evidence that the relationship of strategic default risk with firm size and age has an inverse U-shape, i.e. strategic default is more likely among medium-sized firms compared to small and large firms and it is also more likely among middle-aged firms compared to new-founded and established firms.

Keywords: Strategic default; Non-performing loans; Corporate loans; Leverage (search for similar items in EconPapers)
JEL-codes: C23 G01 G21 G32 (search for similar items in EconPapers)
Pages: 28
Date: 2016-07
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-cse, nep-rmg and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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