Is a Friend in Need a Friend Indeed? How Relationship Borrowers Fare during the COVID-19 Crisis
32 Pages Posted: 28 Dec 2020 Last revised: 22 Apr 2025
Date Written: April 15, 2025
Abstract
We challenge the existing relationship lending literature on how banks manage their relationships with corporate borrowers during crises. We test theories of intertemporal smoothing during the closure period of COVID-19 crisis when borrowers are in great need of relationship benefits. We find that relationship borrowers receive worse rather than more favorable loan contract terms than others during this period. These and other results provide novel evidence on the functioning of relationship lending during a pandemic and contrast existing evidence gleaned from banking and financial crises.
Keywords: Banks, relationship lending, loan contract terms, financial crises, COVID-19
JEL Classification: G01, G21, G28
Suggested Citation: Suggested Citation
Berger, Allen N. and Bouwman, Christa H. S. and Norden, Lars and Roman, Raluca A. and Udell, Gregory F. and Wang, Teng, Is a Friend in Need a Friend Indeed? How Relationship Borrowers Fare during the COVID-19 Crisis (April 15, 2025). Available at SSRN: https://ssrn.com/abstract=3755243 or http://dx.doi.org/10.2139/ssrn.3755243
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