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Related Lending

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Author Info
Rafael La Porta
Florencio López-de-Silanes
Guillermo Zamarripa

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Abstract

In many countries, banks lend to firms controlled by the bank's owners. We examine the benefits of related lending using a newly assembled data set for Mexico. Related lending is prevalent (20 percent of commercial loans) and takes place on better terms than arm's-length lending (annual interest rates are 4 percentage points lower). Related loans are 33 percent more likely to default and, when they do, have lower recovery rates (30 percent less) than unrelated ones. The evidence for Mexico in the 1990s supports the view that in some important settings related lending is a manifestation of looting. © 2001 the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Publisher Info
Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 118 (2003)
Issue (Month): 1 (February)
Pages: 231-268
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Handle: RePEc:tpr:qjecon:v:118:y:2003:i:1:p:231-268

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Simon Johnson et al., 2000. "Tunneling," American Economic Review, American Economic Association, vol. 90(2), pages 22-27, May. [Downloadable!] (restricted)
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  2. George A. Akerlof & Paul M. Romer, 1993. "Looting: The Economic Underworld of Bankruptcy for Profit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1993-2), pages 1-74. [Downloadable!]
  3. Mike Burkart & Denis Gromb & Fausto Panunzi, 1998. "Why Higher Takeover Premia Protect Minority Shareholders," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 172-204, February. [Downloadable!] (restricted)
  4. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2002. "Government Ownership of Banks," Journal of Finance, American Finance Association, vol. 57(1), pages 265-301, 02. [Downloadable!] (restricted)
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  5. Barth, James R. & Caprio Jr, Gerard & Levine, Ross, 2001. "The regulation and supervision of banks around the world - a new database," Policy Research Working Paper Series 2588, The World Bank. [Downloadable!]
  6. Rafael La porta & Florencio Lopez-De-Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, 06. [Downloadable!] (restricted)
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  7. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Harvard Institute of Economic Research Working Papers 1788, Harvard - Institute of Economic Research.
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  8. Rafael La Porta & Florencio López-De-Silanes, 1999. "The Benefits Of Privatization: Evidence From Mexico," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1193-1242, November. [Downloadable!] (restricted)
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  9. Jun-Koo Kang & Rene M. Stulz, 1997. "Is Bank-Centered Corporate Governance Worth It? A Cross-Sectional Analysis of the Performance of Japanese Firms during the Asset Price Deflation," NBER Working Papers 6238, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Randall Morck & Masao Nakamura, 1999. "Banks and Corporate Control in Japan," Journal of Finance, American Finance Association, vol. 54(1), pages 319-339, 02. [Downloadable!] (restricted)
  11. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
  12. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December. [Downloadable!] (restricted)
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  13. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-400, September. [Downloadable!] (restricted)
  14. Laeven, Luc, 2001. "Insider Lending and Bank Ownership: The Case of Russia," Journal of Comparative Economics, Elsevier, vol. 29(2), pages 207-229, June. [Downloadable!] (restricted)
  15. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 33-60, February. [Downloadable!] (restricted)
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  16. Ben S. Bernanke, 1983. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression," NBER Working Papers 1054, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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