Is a Friend in Need a Friend Indeed? How Relationship Borrowers Fare during the COVID-19 Crisis

Allen N. Berger, Christa H. S. Bouwman, Lars Norden, Raluca Roman (raluca.roman@phil.frb.org) and Gregory Udell (gudell@indiana.edu)

No 21-13, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We analyze loan contract terms, investigating whether relationship borrowers fare better or worse than others in times of need, using the COVID-19 crisis as a quasi-natural experiment. COVID-19 is superior to prior crises for such analysis because its public health and government restrictions shocks directly harm borrowers, rather than banks. Our dataset includes Y-14Q, covering syndicated and non syndicated loans and small and large firms, unlike some other datasets. We find the dark side of relationships dominates across four relationship measures, 14 COVID-19 shocks, and PPP participation. There are limited pockets of bright-side findings associated with smaller firms and smaller banks.

Keywords: banks; bank loans; relationship lending; loan contract terms; financial crises; COVID-19; Paycheck Protection Program (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Pages: 55
Date: 2021-03-25
New Economics Papers: this item is included in nep-ban
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DOI: 10.21799/frbp.wp.2021.13

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