Yale ICF Working Paper No. 02-19
35 Pages Posted: 31 Mar 2002
Date Written: May 16, 2002
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 Classification: G3, G2
Suggested Citation: Suggested Citation
La Porta, Rafael and Lopez de Silanes, Florencio and Zamarripa, Guillermo, Related Lending (May 16, 2002). Yale ICF Working Paper No. 02-19. Available at SSRN: https://ssrn.com/abstract=302128 or http://dx.doi.org/10.2139/ssrn.302128