Related LendingIn 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. |
Common terms and phrases
Andrei Shleifer b=significant bad loans bank's bankrupt banks borrowing terms capital change in control Citibank Daron Acemoglu debtor default rates deflated to December deposit insurance directors dollars domestic currency dummies Yes Yes Dummy variable equity event period financial distress Florencio López-de-Silanes grace period incentives Interest rate spreads investment keiretsu level of related Loan performance loans pay loans to related loans to unrelated looting view maturity mean median Mexican banking Mexican pesos Mexico moral hazard NBER Working Papers non-performing loans ownership Panel payment personal guarantees probit derivatives Producer Price Index profits Publicly traded publicly-traded firms random sample real interest rates regressions related and unrelated related borrowers related lending related loans related parties borrow restructured self-dealing Serfin sold to FOBAPROA survivor banks t-statistics takes a value three-state information view Tobit total assets unrelated and related unrelated borrowers unrelated loans unrelated parties value equal variable takes www.nber.org Yes Yes Yes