Is a Friend in Need a Friend Indeed? How Relationship Borrowers Fare during the COVID-19 Crisis

Abstract

We analyze loan contract terms, investigating whether relationship borrowers fare better or worse than others in times of need, using the COVID-19 crisis as a quasi-natural experiment. COVID-19 is superior to prior crises for such analysis because its public health and government restrictions shocks directly harm borrowers, rather than banks. Our dataset includes Y-14Q, covering syndicated and non-syndicated loans and small and large firms, unlike some other datasets. We find the dark side of relationships dominates across four relationship measures, fourteen COVID-19 shocks, and the PPP. There are limited pockets of bright-side findings associated with smaller firms and smaller banks.

Keywords: Banks, bank loans, relationship lending, loan contract terms, financial crises, COVID-19, Paycheck Protection Program (PPP)

JEL Classification: G01, G21, G28