Loss of a lending relationship: shock or relief?
Karolis Liaudinskas () and
Kristina Grigaite ()
Additional contact information
Karolis Liaudinskas: Universitat Pompeu Fabra
Kristina Grigaite: Bank of Lithuania
No 64, Bank of Lithuania Working Paper Series from Bank of Lithuania
We use loan-level data and a novel identification setting – closures of banks – to study how forced break-ups of lending relationships affect firms’ borrowing costs. We find that after a financially distressed bank closed and its best borrowers were exogenously forced to switch, their borrowing costs dropped steeply and converged to the market’s average. We document no such effect when a healthy bank closed. This suggests that distressed banks can use informational monopoly power to hold up and exploit their best borrowers. Apparently, closures of such banks can release the best-quality firms from the hold-up and allow borrowing cheaper elsewhere.
Keywords: relationship lending; hold-up; asymmetric information; bank closures; financial distress; switching costs (search for similar items in EconPapers)
JEL-codes: D82 E51 G20 G21 G30 G33 L14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-mac
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://www.lb.lt/uploads/publications/docs/22476_ ... 7bcd095b9a20dcc8.pdf Full text (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:lie:wpaper:64
Access Statistics for this paper
More papers in Bank of Lithuania Working Paper Series from Bank of Lithuania Bank of Lithuania Gedimino pr. 6, LT-01103 Vilnius, Lithuania. Contact information at EDIRC.
Bibliographic data for series maintained by Povilas Lastauskas ().