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Bank specialization and zombie lending

Author

Listed:
  • Olivier De Jonghe

    (National Bank of Belgium and Tilburg University)

  • Klaas Mulier

    (Ghent University)

  • Ilia Samarin

    (National Bank of Belgium and Ghent University)

Abstract

Bank specialization leads to expertise, including knowledge on zombie borrowers and the negative impact they exert on healthy borrowers. This induces specialized banks to reduce zombie lending. The reduction in zombie lending is larger when the scope and opportunity cost of negative spillovers to healthy borrowers is larger; namely, when the fraction of sectoral labor stuck in zombie firms is larger or when the sector is expected to grow faster. Additionally, specialized banks reduce zombie lending less in sectors with higher asset specificity, as zombie firms’ default (and potential asset fire sales) could trigger reductions in healthy borrowers’ collateral values.

Suggested Citation

  • Olivier De Jonghe & Klaas Mulier & Ilia Samarin, 2021. "Bank specialization and zombie lending," Working Paper Research 404, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:202111-404
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    File URL: https://www.nbb.be/en/articles/bank-specialization-and-zombie-lending
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    Cited by:

    1. Dursun-de Neef, H. Özlem, 2023. "Bank specialization, mortgage lending and house prices," Journal of Banking & Finance, Elsevier, vol. 151(C).

    More about this item

    Keywords

    Credit misallocationZombie lendingBank specializationSoft information;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G3 - Financial Economics - - Corporate Finance and Governance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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