The Relevance of Relationship Lending in Times of Crisis

46 Pages Posted: 9 Oct 2020 Last revised: 12 Nov 2020

See all articles by Dan Amiram

Dan Amiram

Tel Aviv University - Coller School of Management

Daniel Rabetti

Tel Aviv University - Coller School of Management

Date Written: September 2020

Abstract

Exploring the Paycheck Protection Program, a setting that allows clear identification of relationship lending effects during the COVID-19 crisis, we find that relationship borrowers receive economically significant larger loans and faster approvals. In the absence of lenders' information advantage motivation documented in prior literature, because the program disregards borrower's credit risk, we examine alternative channels for these benefits. We find that lenders prioritize relationship borrowers mainly due to concerns with the increasing risk of default on borrowers' pre-crisis debt in their portfolios. The benefits we document come with costs. Borrowers are more likely to violate PPP rules when a relationship exists.

Keywords: Relationship Lending, Paycheck Protection Program, COVID-19 Crisis

JEL Classification: G01, G21, G38, H32, H81, H84

Suggested Citation

Amiram, Dan and Rabetti, Daniel, The Relevance of Relationship Lending in Times of Crisis (September 2020). Available at SSRN: https://ssrn.com/abstract=3701587 or http://dx.doi.org/10.2139/ssrn.3701587

Dan Amiram

Tel Aviv University - Coller School of Management ( email )

Tel Aviv
Israel

Daniel Rabetti (Contact Author)

Tel Aviv University - Coller School of Management ( email )

Ramat Aviv
Tel-Aviv, 6997801
Israel
972-54-9107234 (Phone)

HOME PAGE: http://https://en-coller.tau.ac.il/

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