Lock‐In Effects in Relationship Lending: Evidence from DIP Loans
| Autor: | Gabriel G. Ramirez, Gaiyan Zhang, Iftekhar Hasan |
|---|---|
| Rok vydání: | 2018 |
| Předmět: |
Economics and Econometrics
050208 finance media_common.quotation_subject 05 social sciences Instrumental variable Financial intermediary 1. No poverty Debtor in possession Monetary economics Interest rate Information asymmetry Accounting 0502 economics and business Economics Endogeneity Heckman correction 050207 economics Capital market Finance media_common |
| Zdroj: | Journal of Money, Credit and Banking. 51:1021-1043 |
| ISSN: | 1538-4616 0022-2879 |
| DOI: | 10.1111/jmcb.12569 |
| Popis: | Do prior lending relationships result in pass‐through savings (lower interest rates) for borrowers, or do they lock in higher costs for borrowers? Theoretical models suggest that when borrowers experience greater information asymmetry, higher switching costs, and limited access to capital markets, they become locked into higher costs from their existing lenders. Firms in Chapter 11 seeking debtor‐in‐possession (DIP) financing often fit this profile. We investigate the presence of lock‐in effects using a sample of 348 DIP loans. We account for endogeneity using the instrument variable (IV) approach and the Heckman selection model and find consistent evidence that prior lending relationship is associated with higher interest costs and the effect is more severe for stronger existing relationships. Our study provides direct evidence that prior lending relationships do create a lock‐in effect under certain circumstances, such as DIP financing. |
| Databáze: | OpenAIRE |
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