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Disrupted Lending Relationship and Borrower's Strategic Default

Author

Listed:
  • Panagiotis Avramidis

    (Institute for Hellenic Growth and Prosperity, The American College of Greece)

  • Ioannis Asimakopoulos

    (Economic Analysis and Research Department, Bank of Greece)

  • Dimitris Malliaropulos

    (Economic Analysis and Research Department, Bank of Greece
    University of Piraeus)

Abstract

Using a sample of bank loans to firms operating in the Greek tourism sector, and regional variation of tourism activities to identify the strategic defaulted firms, we examine the impact of bank consolidation on the firms’ payment behavior. We show that a merger-induced impairment of the lending relationship is related to a higher likelihood of strategic default by the target bank’s borrowers. In contrast, mergers with a limited impact on the lending relationship have no effect on the probability of strategic default of target bank’s borrowers. The results highlight the importance of relationship lending benefits in mitigating strategic default risk. Our findings are robust to the alternative interpretation of soft budget constraints.

Suggested Citation

  • Panagiotis Avramidis & Ioannis Asimakopoulos & Dimitris Malliaropulos, 2023. "Disrupted Lending Relationship and Borrower's Strategic Default," Journal of Financial Services Research, Springer;Western Finance Association, vol. 63(1), pages 91-116, February.
    • Handle: RePEc:kap:jfsres:v:63:y:2023:i:1:d:10.1007_s10693-021-00368-7
    DOI: 10.1007/s10693-021-00368-7
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    More about this item

    Keywords

    Bank consolidation; Strategic default; Lending relationship;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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