Relationship lending and bank loan covenant violations

Xu Chong Bo, Wenyi Li, Jing Shi, Yi Zheng, Qing Zhou

Research output: Contribution to journalArticlepeer-review

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 languageEnglish
Number of pages32
JournalAccounting & Finance
Early online date13 Mar 2021
DOIs
Publication statusE-pub ahead of print - 13 Mar 2021

Keywords

  • Information asymmetry
  • Loan covenant violations
  • Relationship lending

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