Related Lending

34 Pages Posted: 23 Mar 2002 Last revised: 26 Oct 2010

See all articles by Rafael La Porta

Rafael La Porta

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Florencio Lopez de Silanes

SKEMA Business School; National Bureau of Economic Research (NBER)

Guillermo Zamarripa

National Banking and Securities Commission, Mexico

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Date Written: March 2002

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.

Suggested Citation

La Porta, Rafael and Lopez de Silanes, Florencio and Zamarripa, Guillermo, Related Lending (March 2002). NBER Working Paper No. w8848, Available at SSRN: https://ssrn.com/abstract=305074

Rafael La Porta (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Florencio Lopez de Silanes

SKEMA Business School ( email )

Avenue Willy Brandt, Euralille
Lille, 59777
France

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Guillermo Zamarripa

National Banking and Securities Commission, Mexico ( email )

Insurgentes Sur 1971
Mexico D.F., 01020
Mexico

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