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Shadow seniority? Lending relationships and borrowers’ selective default

Author

Listed:
  • Francisco González

    (UNIVERSIDAD DE OVIEDO)

  • José E. Gutiérrez

    (Banco de España)

  • José María Serena

    (Banco de España)

Abstract

This paper analyzes how lending relationships affect firms’ incentives to default, drawing on loan-level data in Spain. We provide new evidence showing that firms first default on loans from less important (“non-main”) banks to preserve their most valuable lending relationships. Our findings also indicate that banks integrate this borrower behavior into their credit risk management because the most important banks within a borrower’s set of lending relationships recognize lower discretionary loan impairments. The results are robust to alternative difference-in-difference (DID) analyses and control for potential bank forbearance, loan characteristics, and a variety of time-varying bank and firm fixed effects.

Suggested Citation

  • Francisco González & José E. Gutiérrez & José María Serena, 2024. "Shadow seniority? Lending relationships and borrowers’ selective default," Working Papers 2420, Banco de España.
    • Handle: RePEc:bde:wpaper:2420
    DOI: https://doi.org/10.53479/36695
    as

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    References listed on IDEAS

    as
    1. Bonfim, Diana, 2009. "Credit risk drivers: Evaluating the contribution of firm level information and of macroeconomic dynamics," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 281-299, February.
    2. Mitchell A. Petersen & Raghuram G. Rajan, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 407-443.
    3. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    4. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    lending relationships; loan default; non-performing loans; loan-loss recognition; forbearance;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    NEP fields

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