Seminar: Loss of a lending relationship: shock or relief?

On Tuesday November 5th 2019, Karolis Liaudinskas (UPF) will give a presentation titled: "Loss of a lending relationship: shock or relief?"

November 5, 2019
13:00 - 14:00
CPB-office, Bezuidenhoutseweg 30, The Hague (Room 3 - Braamzaal)
Karolis Liaudinskas (UPF)
Benedikt Vogt (CPB)
Working language

We use loan-level data and a novel identification setting – closures of banks – to study how forced break-ups of lending relationships affect firms’ borrowing costs. We find that after a financially distressed bank closed and its best borrowers were forced to switch, their borrowing costs dropped steeply and converged to the market’s average. We document no such effect when a healthy bank closed. This suggests that distressed banks can use informational monopoly power to hold up and exploit their best borrowers. Closures of such banks can release the best-quality firms from the hold-up and allow borrowing cheaper elsewhere.


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