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Shadow seniority? Lending relationships and borrowers’ selective default

Author

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  • González, Francisco
  • Gutiérrez, José E.
  • Serena, Jose María

Abstract

This paper uncovers new benefits of lending relationships for banks. Using a loan-level database, we find that firms in financial distress avoid delaying payments on loans from their most important banks to preserve their most valuable lending relationships. This effect is stronger for microenterprises and when firms’ borrowing is concentrated in fewer banks. We also find that banks internalize this borrower behavior in the recognition of discretionary loan impairments. Our analysis controls for potential zombie lending, loan characteristics, endogenous matching between banks and firms, and time-varying firm and bank fixed effects to identify borrowers’ choices to repay loans. We confirm our results by exploiting a bank merger and showing that firms that prioritize payments to their main banks perform better in the two years after their first payment delay.

Suggested Citation

  • González, Francisco & Gutiérrez, José E. & Serena, Jose María, 2026. "Shadow seniority? Lending relationships and borrowers’ selective default," Journal of Corporate Finance, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:corfin:v:99:y:2026:i:c:s0929119926000544
    DOI: 10.1016/j.jcorpfin.2026.102996
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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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