Lending Relationships in Loan Renegotiation: Evidence from Corporate Loans

62 Pages Posted: 19 May 2021

See all articles by Melina Papoutsi

Melina Papoutsi

European Central Bank (ECB) - Directorate General Research

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2021

Abstract

This paper presents evidence that personal relationships between corporate borrowers and bank loan officers improve the outcomes of loan renegotiation. Analysing 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 renegotiations.

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

Suggested Citation

Papoutsi, Melina, Lending Relationships in Loan Renegotiation: Evidence from Corporate Loans (May 1, 2021). ECB Working Paper No. 2021/2553, Available at SSRN: https://ssrn.com/abstract=3849129 or http://dx.doi.org/10.2139/ssrn.3849129

Melina Papoutsi (Contact Author)

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

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Germany

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