Lending Relationships and the Effect of Bank Distress: Evidence from the 2007-2009 Financial Crisis
Daniel R. Carvalho
University of Southern California - Marshall School of Business - Finance and Business Economics Department
Miguel A. Ferreira
Nova School of Business and Economics; European Corporate Governance Institute (ECGI)
Pedro P. Matos
University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)
September 27, 2013
We study the transmission of bank distress to nonfinancial firms from 34 countries during the 2007-2009 financial crisis using systemic and bank-specific shocks. We find that bank distress is associated with equity valuation losses and investment cuts to borrower firms with the strongest lending relationships with banks. The losses are not offset by borrowers’ access to public debt markets and are concentrated in firms with the greatest information asymmetry problems and with the weakest financial positions. Our findings suggest that public debt markets do not mitigate the effects of relationship bank distress during financial crises.
Number of Pages in PDF File: 57
Keywords: Lending Relationships, Bank Distress, Public Debt Markets, Financial Crisis
JEL Classification: G01, G21, G32
Date posted: October 24, 2010 ; Last revised: September 27, 2013
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