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Related Lending
Rafael La Porta Tuck School of Business at Dartmouth; National Bureau of Economic Research (NBER) Florencio Lopez de Silanes EDHEC Business School; National Bureau of Economic Research (NBER); Tinbergen Institute Guillermo Zamarripa National Banking and Securities Commission, Mexico May 16, 2002 Yale ICF Working Paper No. 02-19 Abstract: In many countries, banks lend to firms controlled by the bank's owners. We examine the benefits of related lending using a newly assembled dataset for Mexico. Related lending is prevalent (20% of commercial loans) and takes place on better terms than arm's-length lending (annual interest rates are 4 percentage points lower). Related loans are 33% more likely to default and, when they do, have lower recovery rates (30% less) than unrelated ones. The evidence supports the view that rather than enhance information sharing, related lending is a manifestation of looting.
JEL Classifications: G3, G2 Working Paper SeriesDate posted: March 31, 2002 ; Last revised: October 10, 2002Suggested CitationContact Information
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