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

61 Pages Posted: 28 Dec 2020

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Christa H. S. Bouwman

Texas A&M University; Wharton Financial Institutions Center

Lars Norden

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE); Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças

Raluca A. Roman

Federal Reserve Bank of Philadelphia

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance

Teng Wang

Board of Governors of the Federal Reserve System

Date Written: December 25, 2020

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

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 (December 25, 2020). Available at SSRN: https://ssrn.com/abstract=3755243 or http://dx.doi.org/10.2139/ssrn.3755243

Allen N. Berger

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Christa H. S. Bouwman

Texas A&M University ( email )

360H Wehner
College Station, TX 77843-4218
United States
979-845-3514 (Phone)
979-845-3514 (Fax)

HOME PAGE: http://people.tamu.edu/~cbouwman/

Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

Lars Norden

Getulio Vargas Foundation (FGV) - Brazilian School of Public and Business Administration (EBAPE) ( email )

Rua Jornalista Orlando Dantas 30
Rio de Janeiro, 22231-010
Brazil
+552130832431 (Phone)

HOME PAGE: http://www.larsnorden.de

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças ( email )

Praia de Botafogo 190/1125, CEP
Rio de Janeiro RJ 22253-900
Brazil

Raluca A. Roman

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Teng Wang (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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