Network-Motivated Lending Decisions: A Rationale for Forbearance Lending

Research Institute of Economy, Trade and Industry Discussion Paper Series 15E057

44 Pages Posted: 11 Aug 2016 Last revised: 17 Oct 2019

See all articles by Yoshiaki Ogura

Yoshiaki Ogura

Waseda University, Faculty of Political Science and Economics

Ryo Okui

Seoul National University

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: October 17, 2019

Abstract

We demonstrate theoretically and empirically the presence of forbearance lending by profit-maximizing banks to influential buyers in a supply network. If the financial market is concentrated, then banks can internalize the negative externality of an influential firm's exit. As a result, they 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 zombie firms. Our empirical study, with a unique dataset containing information about interfirm relationships and main banks, provides evidence for such network-motivated lending decisions.

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

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

Suggested Citation

Ogura, Yoshiaki and Okui, Ryo and Saito, Yukiko, Network-Motivated Lending Decisions: A Rationale for Forbearance Lending (October 17, 2019). Research Institute of Economy, Trade and Industry 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

Seoul National University ( email )

Seoul
Korea, Republic of (South Korea)

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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