Banks' lending decisions after loan acquisitions: do banks favour pre-existing relationships?

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Abstract:

This article 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 banks have a conflict of interest that comes with pre-existing lending relationships, and that bank quality does not necessarily convey the risk classes of its client firms.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840802600202

Affiliations: 1: KDI School of Public Policy and Management, Seoul, 130-868, Korea 2: Korea Deposit Insurance Corporation, Seoul, 100-180, Korea

Publication date: April 1, 2011

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