Network-Motivated Lending Decisions

RIETI Discussion Paper Series 15E057

54 Pages Posted: 11 Aug 2016 Last revised: 3 Nov 2021

See all articles by Yoshiaki Ogura

Yoshiaki Ogura

Waseda University, Faculty of Political Science and Economics

Ryo Okui

University of Tokyo - Graduate School of Economics

Yukiko Saito

早稲田大学; Waseda University - School of Political Science and Economics; Research Institute of Economy, Trade and Industry (RIETI)

Date Written: November 2, 2021

Abstract


We demonstrate theoretically the presence of forbearance lending by profit-maximizing banks to influential buyers and sellers in a supply network. A dominant bank in the financial market internalizes the negative externality of an influential firm's exit. As a result, it may keep refinancing for a loss-making influential firm at an interest rate lower than the prime rate. This mechanism sheds new light on the discussion about bailouts offered to so-called zombie firms. We propose measures to gauge the extent of the externality of an influential seller, price influence coefficient, and that of an influential buyer, demand influence coefficient.

Keywords: supply network, influence coefficient, forbearance, bailout, zombie firms

JEL Classification: C55, D57, G21, G32, L13, L14

Suggested Citation

Ogura, Yoshiaki and Okui, Ryo and Saito, Yukiko, Network-Motivated Lending Decisions (November 2, 2021). RIETI Discussion Paper Series 15E057, Available at SSRN: https://ssrn.com/abstract=2819856 or http://dx.doi.org/10.2139/ssrn.2819856

Yoshiaki Ogura (Contact Author)

Waseda University, Faculty of Political Science and Economics ( email )

1-6-1 Nishi-waseda, Shinjuku-ku
Tokyo
Japan

Ryo Okui

University of Tokyo - Graduate School of Economics ( email )

Tokyo
Japan

Yukiko Saito

早稲田大学 ( email )

1-6-1 Nishiwaseda
Shinjuku, Tokyo 169-8050
Japan
0352861213 (Phone)

Waseda University - School of Political Science and Economics ( email )

1-6-1 Nishi-Waseda
Shinjuku-ku, Tokyo 169-8050, Tokyo 169-8050
Japan

Research Institute of Economy, Trade and Industry (RIETI) ( email )

1-3-1 Kasumigaseki
Chiyoda-ku
Tokyo 100-8901
Japan

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