o Time : September 29, Friday 12:00 ~ 2:00 p.m.

o Venue : 9705(The 7th floor seminar room)


Banks’ Lending Decisions After Loan Acquisitions: Do Banks Favor Pre-existing Relationships?



-Abstract

This paper examines the lending decisions of Korean banks after they acquire loan portfolios from failed banks. We find that a firm’s pre-existing relationships positively affect the continuation of those relationships, and that pre-existing relationships negatively impact increases in loan size, once those relationships are maintained. These results suggest that (1) banks have a conflict of interest that comes with pre-existing lending relationships, (2) banks have an incentive for hold-up from information monopoly, and (3) bank quality does not necessarily convey the risk classes of its client firms. We do not find evidence that banks have motivation for firm-based loan portfolio diversification.