Relationship Bank Behavior During Borrower Distress

54 Pages Posted: 28 Feb 2011 Last revised: 22 Sep 2017

See all articles by Yan Li

Yan Li

Korea University Business School

Ruichang Lu

Department of Finance, Guanghua School of Management, Peking University

Anand Srinivasan

National University of Singapore - Department of Finance

Date Written: September 20, 2017

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

JEL Classification: G21, G33

Suggested Citation

Li, Yan and Lu, Ruichang and Srinivasan, Anand, Relationship Bank Behavior During Borrower Distress (September 20, 2017). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1773069 or http://dx.doi.org/10.2139/ssrn.1773069

Yan Li

Korea University Business School ( email )

1 Anam-dong 5 ka
Seoul, 136-701
Korea
82-2-3290-2622 (Phone)

Ruichang Lu

Department of Finance, Guanghua School of Management, Peking University ( email )

Beijing
China

Anand Srinivasan (Contact Author)

National University of Singapore - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

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