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The Conflict Induced Costs of Lending

Author

Listed:
  • Mrinal Mishra

    (University of Zurich)

  • Steven Ongena

    (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR))

  • Yushi Peng

    (Tilburg University)

Abstract

We study the effect of armed conflict on loan officers and their actual lending decisions. Following repeated incidences of mortar shelling, loan rates set by loan officers surpass the levels in comparable locales in border areas where shelling has become routine. Our empirical results and structural model depict that the channel through which this occurs is the distortion of loan officers’ beliefs. Simultaneously, the dispersion of loan rates decreases suggesting a hardening of the beliefs about the new normal of being shelled recurringly. Hence, the real costs of armed conflict through credit markets are substantial and potentially harmful for borrowers.

Suggested Citation

  • Mrinal Mishra & Steven Ongena & Yushi Peng, 2020. "The Conflict Induced Costs of Lending," Swiss Finance Institute Research Paper Series 20-50, Swiss Finance Institute, revised Sep 2023.
    • Handle: RePEc:chf:rpseri:rp2050
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    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3634199
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    Cited by:

    1. Claudia Custodio & Bernardo Mendes & Diogo Mendes, 2021. "Firm responses to violent conflicts," NOVAFRICA Working Paper Series wp2106, Universidade Nova de Lisboa, Nova School of Business and Economics, NOVAFRICA.

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