Relationship Bank Behavior During Borrower Distress

Yan Li, Ruichang Lu and Anand Srinivasan
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Anand Srinivasan: NUS Business School, National University of Singapore

Working Papers from Centre for Advanced Financial Research and Learning (CAFRAL)

Abstract: This paper provides a comprehensive examination of the time series behavior of relationship banks around and during borrower distress. Relationship and outside loans have similar interest rates during distress, and even two years prior to distress. Relative to outside loans in distress, relationship loans in distress have lower maturity. The fraction of bank lending given by relationship banks reduces during borrower distress. Overall, borrowers in distress do not derive benefits from relationship banks. These findings are inconsistent with models that suggest banks have an implicit commitment to help their borrowers in distress due to reputation concerns.

Keywords: Relationship Banking; Distress; Loan Pricing; Collateral (search for similar items in EconPapers)
JEL-codes: G21 G33 (search for similar items in EconPapers)
Pages: 54
Date: 2018-03
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Published in Journal of Finance

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