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Working Paper
Evergreening
We develop a simple model of relationship lending where lenders have incentives for evergreening loans by offering better terms to less productive and more indebted firms. We detect such lending behavior using loan-level supervisory data for the United States. Low-capitalized banks systematically distort firms’ risk assessments to window-dress their balance sheets. To avoid further reductions in their capital ratios, such banks extend relatively more credit to underreported borrowers. We incorporate the theoretical mechanism into a dynamic heterogeneous-firm model to show that evergreening ...
Journal Article
Loan Evergreening: Recent Evidence from the U.S.
Banks may have incentives to keep lending to firms to avoid losses on past loans to those firms.
Working Paper
Corporate stress and bank nonperforming loans: Evidence from Pakistan
Using detailed administrative Pakistani credit registry data, we show that banks with low leverage ratios are both significantly slower and less likely to recognize a loan as nonperforming than other banks that lend to the same firm. Moreover, we find suggestive evidence that this lack of recognition impedes loan curing, with banks with low leverage ratios reporting significantly higher final default rates than other banks for the same borrower (even after controlling for differences in loan terms). Our empirical findings are consistent with the theoretical prediction that classifying a ...
Working Paper
Evergreening
We develop a simple model of relationship lending where lenders have incentives for evergreening loans by offering better terms to less productive and more indebted firms. We detect such lending behavior using loan-level supervisory data for the United States. Low-capitalized banks systematically distort firms’ risk assessments to window-dress their balance sheets. To avoid further reductions in their capital ratios, such banks extend relatively more credit to underreported borrowers. We incorporate the theoretical mechanism into a dynamic heterogeneous-firm model to show that evergreening ...
Working Paper
Evergreening
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 ...
Working Paper
Evergreening
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 ...
Working Paper
Evergreening
We develop a simple model of concentrated 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 ...
Working Paper
Evergreening
We develop a simple model of concentrated 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 ...
Working Paper
Evergreening
We develop a simple model of relationship lending where lenders have an incentive to evergreen loans by offering better terms to less productive and more indebted firms. We detect such lending distortions using loan-level supervisory data for the United States. Low-capitalized banks systematically distort their risk assessments of firms to window-dress their balance sheets and extend relatively more credit to underreported borrowers. Consistent with our theoretical predictions, these effects are driven by larger outstanding loans and low-productivity firms. We incorporate the theoretical ...
Working Paper
Evergreening
We develop a simple model of relationship lending where lenders have an incentive to evergreen loans by offering better terms to less productive and more indebted firms. We detect such lending distortions using loan-level supervisory data for the United States. Low-capitalized banks systematically distort their risk assessments of firms to window-dress their balance sheets and extend relatively more credit to underreported borrowers. Consistent with our theoretical predictions, these effects are driven by larger outstanding loans and low-productivity firms. We incorporate the theoretical ...