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We investigate the effects of lending relationships between banks and borrowers on loan supply during the economic shock caused by the coronavirus (COVID-19) pandemic. Using bank?firm matched data for Japan… Click to show full abstract
We investigate the effects of lending relationships between banks and borrowers on loan supply during the economic shock caused by the coronavirus (COVID-19) pandemic. Using bank?firm matched data for Japan to control for several firm- and bank-specific unobserved effects, we show that banks with close relationships with borrowing firms offer more bank loans to these firms during the COVID-19 shock. This effect is larger if the borrowing firms' cash flows decrease substantially during the shock. These results imply that banks acted as liquidity providers for borrowers during sudden and unpredictable shocks if their relationships with firms were close.
Journal Title: Managerial and Decision Economics
Year Published: 2022
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