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Moral hazard and strategic default: evidence from Greek corporate loans

Author

Listed:
  • Ioannis Asimakopoulos

    (Bank of Greece)

  • Panagiotis K. Avramidis

    (ALBA Graduate Business School at the American College of Greece)

  • Dimitris Malliaropulos

    () (Bank of Greece, University of Piraeus)

  • Nickolaos G. Travlos

    (ALBA Graduate Business School at the American College of Greece)

Abstract

Using a unique dataset of corporate loans of 13,070 Greek firms for the period 2008-2015 and an identification strategy based on the internal credit ratings of banks, we provide evidence that one out of six firms with non-performing loans are strategic defaulters. Furthermore, we investigate potential determinants of firms’ behavior by relating the probability of strategic default to a number of firm characteristics such as size, age, liquidity, profitability and collateral value. We provide evidence of a positive relationship of strategic default with outstanding debt and economic uncertainty and a negative relationship with the value of collateral. Also, profitability and collateral can be used to distinguish the strategic defaulters from the financially distressed defaulters. Finally, we find evidence that the relationship of strategic default risk with firm size and age has an inverse U-shape, i.e. strategic default is more likely among medium-sized firms compared to small and large firms and it is also more likely among middle-aged firms compared to new-founded and established firms.

Suggested Citation

  • Ioannis Asimakopoulos & Panagiotis K. Avramidis & Dimitris Malliaropulos & Nickolaos G. Travlos, 2016. "Moral hazard and strategic default: evidence from Greek corporate loans," Working Papers 211, Bank of Greece.
  • Handle: RePEc:bog:wpaper:211
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    File URL: http://www.bankofgreece.gr/BogEkdoseis/Paper2016211.pdf
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    References listed on IDEAS

    as
    1. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
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    3. William Adams & Liran Einav & Jonathan Levin, 2009. "Liquidity Constraints and Imperfect Information in Subprime Lending," American Economic Review, American Economic Association, vol. 99(1), pages 49-84, March.
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    5. Dean Karlan & Jonathan Zinman, 2009. "Observing Unobservables: Identifying Information Asymmetries With a Consumer Credit Field Experiment," Econometrica, Econometric Society, vol. 77(6), pages 1993-2008, November.
    6. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
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    8. Ronel Elul & Nicholas S. Souleles & Souphala Chomsisengphet & Dennis Glennon & Robert Hunt, 2010. "What "Triggers" Mortgage Default?," American Economic Review, American Economic Association, vol. 100(2), pages 490-494, May.
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    Cited by:

    1. Helen Louri & Petros Migiakis, 2019. "Financing economic growth in Greece: lessons from the crisis," Working Papers 262, Bank of Greece.

    More about this item

    Keywords

    Strategic default; Non-performing loans; Corporate loans; Leverage;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • 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
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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