Fed in Print
All Title Author Abstract Keywords
Bank Series Content Type Author JEL Classification Keyword

Working Paper Revision

Evergreening


Abstract: We develop a simple model of relationship lending where lenders have incentives for evergreening loans by offering better terms to firms that are close to default. We detect such lending behavior using loan-level supervisory data for the United States. Banks that own a larger share of a firm's debt provide distressed firms with relatively more credit at lower interest rates. Building on this empirical validation, we incorporate the theoretical mechanism into a dynamic heterogeneous-firm model to show that evergreening affects aggregate outcomes, resulting in lower interest rates, higher levels of debt, and lower productivity.

Keywords: evergreening; zombie firms; bank lending; misallocation;

JEL Classification: E43; E44; E60; G21; G32;

https://doi.org/10.20955/wp.2021.012

Status: Published in Journal of Financial Economics

Access Documents

File(s): File format is application/pdf https://s3.amazonaws.com/real.stlouisfed.org/wp/2021/2021-012.pdf
Description: Full Text

Authors

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2023-01

Number: 2021-012

Note: Publisher DOI: https://doi.org/10.1016/j.jfineco.2024.103778

Related Works