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Network-Motivated Forbearance Lending

Author

Listed:
  • Yoshiaki Ogura

    (Faculty of Political Science and Economics, Waseda University, Tokyo 169-8050, Japan)

  • Ryo Okui

    (Department of Economics, University of Tokyo, Tokyo 113-0033, Japan)

  • Yukiko Umeno Saito

    (Faculty of Political Science and Economics, Waseda University, Tokyo 169-8050, Japan; and Research Institute of Economy, Trade, and Industry, Tokyo 100-8901, Japan)

Abstract

This paper develops a theoretical framework for network-motivated forbearance lending, or forbearance lending to influential buyers and sellers in a supply network. Because dominant banks in a financial market internalize the negative externality of an influential firm’s exit, they may continue to refinance a loss-making influential firm at an interest rate lower than the prime rate. This type of forbearance lending is distinct from other strategies such as evergreening or gambling for resurrection, and we show that network-motivated forbearance lending is independent of the financial soundness of the bank and can be welfare improving. To evaluate the extent of the externality of an influential seller or buyer, we propose two measures: the price influence coefficient and the demand influence coefficient, respectively.

Suggested Citation

  • Yoshiaki Ogura & Ryo Okui & Yukiko Umeno Saito, 2025. "Network-Motivated Forbearance Lending," Management Science, INFORMS, vol. 71(11), pages 9766-9783, November.
    • Handle: RePEc:inm:ormnsc:v:71:y:2025:i:11:p:9766-9783
    DOI: 10.1287/mnsc.2023.00459
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