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Related Lending

  • Rafael La Porta
  • Florencio López-de-Silanes
  • Guillermo Zamarripa

In many countries, banks lend to firms controlled by the bank's owners. We examine the benefits of related lending using a newly assembled data set for Mexico. Related lending is prevalent (20 percent of commercial loans) and takes place on better terms than arm's-length lending (annual interest rates are 4 percentage points lower). Related loans are 33 percent more likely to default and, when they do, have lower recovery rates (30 percent less) than unrelated ones. The evidence for Mexico in the 1990s supports the view that in some important settings related lending is a manifestation of looting. © 2001 the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 118 (2003)
Issue (Month): 1 (February)
Pages: 231-268

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Handle: RePEc:tpr:qjecon:v:118:y:2003:i:1:p:231-268
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  1. Rafael La Porta & Florencio López-De-Silanes, 1999. "The Benefits Of Privatization: Evidence From Mexico," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1193-1242, November.
  2. Naomi R. Lamoreaux, 1994. "Insider Lending: Banks, Personal Connections, and Economic Development in Industrial New England," NBER Books, National Bureau of Economic Research, Inc, number lamo94-1, June.
  3. George A. Akerlof & Paul M. Romer, 1993. "Looting: The Economic Underworld of Bankruptcy for Profit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 1-74.
  4. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," NBER Working Papers 5879, National Bureau of Economic Research, Inc.
  5. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  6. Barth, James R. & Caprio Jr, Gerard & Levine, Ross, 2001. "The regulation and supervision of banks around the world - a new database," Policy Research Working Paper Series 2588, The World Bank.
  7. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, 1999. "Investor Protection and Corporate Valuation," Harvard Institute of Economic Research Working Papers 1882, Harvard - Institute of Economic Research.
  8. Jun-Koo Kang & Rene M. Stulz, 1997. "Is Bank-Centered Corporate Governance Worth It? A Cross-Sectional Analysis of the Performance of Japanese Firms during the Asset Price Deflation," NBER Working Papers 6238, National Bureau of Economic Research, Inc.
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  14. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1989. "Corporate structure, liquidity, and investment: evidence from Japanese industrial groups," Finance and Economics Discussion Series 82, Board of Governors of the Federal Reserve System (U.S.).
  15. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June.
  16. Laeven, Luc, 2001. "Insider Lending and Bank Ownership: The Case of Russia," Journal of Comparative Economics, Elsevier, vol. 29(2), pages 207-229, June.
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