Abstract
We examine the association between relationship lending and the likelihood of bank loan covenant violations. We find that relationship lending reduces the probability of ex‐post covenant violations. The length of the lending relationships has an inverted U‐shaped effect on the likelihood of covenant violations. The borrowers and lenders both benefit from relationship lending, but long‐term lending relationships weaken the borrower's bargaining power.
Original language | English |
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Pages (from-to) | 5847-5878 |
Number of pages | 32 |
Journal | Accounting & Finance |
Volume | 61 |
Issue number | 4 |
Early online date | 13 Mar 2021 |
DOIs | |
Publication status | Published - Dec 2021 |
Keywords
- Information asymmetry
- Loan covenant violations
- Relationship lending