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Moral hazard and strategic default: evidence from Greek corporate loans

Author

Listed:
  • Ioannis Asimakopoulos

    (Bank of Greece)

  • Panagiotis K. Avramidis

    (ALBA Graduate Business School at the American College of Greece)

  • Dimitris Malliaropulos

    (Bank of Greece, University of Piraeus)

  • Nickolaos G. Travlos

    (ALBA Graduate Business School at the American College of Greece)

Abstract

Using a unique dataset of corporate loans of 13,070 Greek firms for the period 2008-2015 and an identification strategy based on the internal credit ratings of banks, we provide evidence that one out of six firms with non-performing loans are strategic defaulters. Furthermore, we investigate potential determinants of firms’ behavior by relating the probability of strategic default to a number of firm characteristics such as size, age, liquidity, profitability and collateral value. We provide evidence of a positive relationship of strategic default with outstanding debt and economic uncertainty and a negative relationship with the value of collateral. Also, profitability and collateral can be used to distinguish the strategic defaulters from the financially distressed defaulters. Finally, we find evidence that the relationship of strategic default risk with firm size and age has an inverse U-shape, i.e. strategic default is more likely among medium-sized firms compared to small and large firms and it is also more likely among middle-aged firms compared to new-founded and established firms.

Suggested Citation

  • Ioannis Asimakopoulos & Panagiotis K. Avramidis & Dimitris Malliaropulos & Nickolaos G. Travlos, 2016. "Moral hazard and strategic default: evidence from Greek corporate loans," Working Papers 211, Bank of Greece.
    • Handle: RePEc:bog:wpaper:211
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    References listed on IDEAS

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    Cited by:

    1. Awais Ur Rehman & Saqib Farid & Muhammad Abubakr Naeem, 2022. "The link between corporate governance, corporate social sustainability and credit risk of Islamic bonds," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 18(12), pages 5990-6014, May.
    2. Alexandre, Michel & Silva, Thiago Christiano & Michalak, Krzysztof & Rodrigues, Francisco Aparecido, 2023. "Does the default pecking order impact systemic risk? Evidence from Brazilian data," European Journal of Operational Research, Elsevier, vol. 309(3), pages 1379-1391.
    3. Karadima, Maria & Louri, Helen, 2021. "Determinants of non-performing loans in Greece: the intricate role of fiscal expansion," LSE Research Online Documents on Economics 110741, London School of Economics and Political Science, LSE Library.
    4. Konstantina Manou & Evangelia Papapetrou, 2016. "The economic behaviour of households in Greece: recent developments and prospects," Economic Bulletin, Bank of Greece, issue 44, pages 7-33, December.
    5. Ioannis Chatzivasiloglou, 2016. "Introduction to solvency ii of (re)insurance undertakings," Economic Bulletin, Bank of Greece, issue 44, pages 63-103, December.
    6. Ivan Huljak & Reiner Martin & Diego Moccero & Cosimo Pancaro, 2022. "Do non-performing loans matter for bank lending and the business cycle in euro area countries?," Journal of Applied Economics, Taylor & Francis Journals, vol. 25(1), pages 1050-1080, December.
    7. Christos Papazoglou & Dimitrios Sideris & Orestis Tsagklas, 2016. "Europe as an optimum currency area: the experience of the Baltic countries," Economic Bulletin, Bank of Greece, issue 44, pages 35-46, December.
    8. Helen Louri & Petros Migiakis, 2019. "Financing economic growth in Greece: lessons from the crisis," Working Papers 262, Bank of Greece.
    9. Helen Louri & Petros Migiakis, 2019. "Financing economic activity in Greece: Past challenges and future prospects," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 135, Hellenic Observatory, LSE.
    10. Sofia Anyfantaki, 2016. "The evolution of financial technology (FinTech)," Economic Bulletin, Bank of Greece, issue 44, pages 47-62, December.

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    More about this item

    Keywords

    Strategic default; Non-performing loans; Corporate loans; Leverage;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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