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Lending relationships in loan renegotiation: evidence from corporate loans

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  • Papoutsi, Melina

Abstract

This paper presents evidence that personal relationships between corporate borrowers and bank loan officers improve the outcomes of loan renegotiation. Analysing a bank reorganization in Greece in the mid-2010s, I find that firms that experience an exogenous interruption in their loan officer relationship confront three consequences: one, the firms are less likely to renegotiate their loans; two, conditional on renegotiation, the firms are given tougher loan terms; and three, the firms are more likely to alter their capital structure. These results point to the importance of lending relationships in mitigating the cost of distress for borrowers in loan renegotiations. JEL Classification: G21, L14, E44, E58, O16

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  • Papoutsi, Melina, 2021. "Lending relationships in loan renegotiation: evidence from corporate loans," Working Paper Series 2553, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20212553
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    Cited by:

    1. Papoutsi, Melina, 2021. "Nothing compares to your loan officer – continuity of relationships and loan renegotiation," Research Bulletin, European Central Bank, vol. 81.
    2. Panagiotis Avramidis & Ioannis Asimakopoulos & Dimitris Malliaropulos, 2023. "Disrupted Lending Relationship and Borrower's Strategic Default," Journal of Financial Services Research, Springer;Western Finance Association, vol. 63(1), pages 91-116, February.

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    More about this item

    Keywords

    bank branch closures; corporate credit; loan officers; loan renegotiation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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