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Group affiliation in periods of credit contraction and bank’s reaction: evidence from the Greek crisis

Panagiotis Avramidis (), Ioannis Asimakopoulos (), Dimitrios Malliaropulos () and Nickolaos G. Travlos
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Panagiotis Avramidis: ALBA Graduate Business School
Nickolaos G. Travlos: Bank of Greece

No 237, Working Papers from Bank of Greece

Abstract: Using a data set of bank loans to Greek firms during the period of the Greek sovereign crisis, we provide empirical evidence that firms affiliated with groups are less likely to default on their bank loan during a credit crunch, compared to stand-alone firms. We show that the lower default risk of affiliated firms is due to access to the internal capital market in the form of intra-group loans and to enhanced access to the restricted external financing. Furthermore, we provide empirical evidence that banks evaluate positively the group membership and that they collect private information about the delinquent affiliated firms from other firms that belong to the group. Finally, we find that banks are more likely to show forbearance against affiliated firms with non-performing loans, in order to delay additional loan charge-offs and to preserve their relationship with the rest of the group.

Keywords: group affiliation; co-insurance; non-performing loans; forbearance (search for similar items in EconPapers)
JEL-codes: G01 G21 G32 C23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-eec
Date: 2017-12
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