Lending Relationships in Loan Renegotiation: Evidence from Corporate Loans

58 Pages Posted: 16 Oct 2020

See all articles by Melina Papoutsi

Melina Papoutsi

European Central Bank (ECB) - Directorate General Research

Date Written: April 29, 2019

Abstract

This paper presents evidence that personal relationships between corporate borrowers and bank loan officers improve the outcomes of loan renegotiation. Analyzing a bank reorganization in Greece in the mid-2010s, I find that firms that experience an exogenous interruption in their loan officer relationship confront three consequences: one, the firms are less likely to renegotiate their loans; two, conditional on renegotiation, the firms are given tougher loan terms; and three, the firms are more likely to alter their capital structure. These results point to the importance of lending relationships in mitigating the cost of distress for borrowers in loan renegotiation.

Keywords: loan renegotiation, lending relationships, bank branch closures, banking sector

JEL Classification: G21, L14, E44, E58, O16

Suggested Citation

Papoutsi, Melina, Lending Relationships in Loan Renegotiation: Evidence from Corporate Loans (April 29, 2019). Available at SSRN: https://ssrn.com/abstract=3682176 or http://dx.doi.org/10.2139/ssrn.3682176

Melina Papoutsi (Contact Author)

European Central Bank (ECB) - Directorate General Research ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

HOME PAGE: http://https://www.melinapapoutsi.com/

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