Shadow seniority?: Lending relationships and borrowers’ selective default

González, Francisco ^[1] ; Gutiérrez, José E. ^[2] ; Serena, José Mª ^[2]
1. [1] Universidad de Oviedo
  
  Universidad de Oviedo
  
  Oviedo, España
2. [2] Banco de España
Localización: Documentos de trabajo - Banco de España, ISSN 0213-2710, Nº 20, 2024
Idioma: inglés
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Resumen
- This paper analyzes how lending relationships affect firms’ incentives to default, drawing on loan-level data in Spain. We provide new evidence showing that firms first default on loans from less important (“non-main”) banks to preserve their most valuable lending relationships. Our findings also indicate that banks integrate this borrower behavior into their credit risk management because the most important banks within a borrower’s set of lending relationships recognize lower discretionary loan impairments. The results are robust to alternative difference-in-difference (DID) analyses and control for potential bank forbearance, loan characteristics, and a variety of time-varying bank and firm fixed effects.