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Relationship lending and bank loan covenant violations

Author

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  • Xu Chong Bo
  • Wenyi Li
  • Jing Shi
  • Yi Zheng
  • Qing Zhou

Abstract

We examine the association between relationship lending and the likelihood of bank loan covenant violations. We find that relationship lending reduces the probability of ex‐post covenant violations. The length of the lending relationships has an inverted U‐shaped effect on the likelihood of covenant violations. The borrowers and lenders both benefit from relationship lending, but long‐term lending relationships weaken the borrower's bargaining power.

Suggested Citation

  • Xu Chong Bo & Wenyi Li & Jing Shi & Yi Zheng & Qing Zhou, 2021. "Relationship lending and bank loan covenant violations," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(4), pages 5847-5878, December.
    • Handle: RePEc:bla:acctfi:v:61:y:2021:i:4:p:5847-5878
    DOI: 10.1111/acfi.12778
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