Lending Relationships and the Effect of Bank Distress: Evidence from the 2007-2009 Financial Crisis

60 Pages Posted: 24 Oct 2010 Last revised: 5 Dec 2015

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); Centre for Economic Policy Research (CEPR)

Pedro P. Matos

University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)

Date Written: September 27, 2013

Abstract

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.

Keywords: Lending Relationships, Bank Distress, Public Debt Markets, Financial Crisis

JEL Classification: G01, G21, G32

Suggested Citation

Carvalho, Daniel R. and Ferreira, Miguel A. and Matos, Pedro P., Lending Relationships and the Effect of Bank Distress: Evidence from the 2007-2009 Financial Crisis (September 27, 2013). Available at SSRN: https://ssrn.com/abstract=1696246 or http://dx.doi.org/10.2139/ssrn.1696246

Daniel R. Carvalho

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

Miguel Almeida Ferreira (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Pedro P. Matos

University of Virginia - Darden School of Business ( email )

University of Virginia
P.O. Box 6550
Charlottesville, VA 22906-6550
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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