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Related Lending

Author

Listed:
  • Rafael La Porta
  • Florencio Lopez-de-Silane
  • Guillermo Zamarripa

Abstract

In many countries, banks lend to firms controlled by the bank?s owners. We examine the benefits of related lending using a newly assembled dataset for Mexico. Related lending is prevalent (20% 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% more likely to default and, when they do, have lower recovery rates (30% less) than unrelated ones. The evidence supports the view that rather than enhance information sharing, related lending is a manifestation of looting.

Suggested Citation

  • Rafael La Porta & Florencio Lopez-de-Silane & Guillermo Zamarripa, 2002. "Related Lending," NBER Working Papers 8848, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8848
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    References listed on IDEAS

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    • G3 - Financial Economics - - Corporate Finance and Governance

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