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Shadow seniority? Lending relationships and borrowers’ selective default
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DOI：10.1016/j.jcorpfin.2026.102996.png)
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Abstract
En 中文
This paper uncovers new benefits of lending relationships for banks. Using a loan-level database, we find that firms in financial distress avoid delaying payments on loans from their most important banks to preserve their most valuable lending relationships. This effect is stronger for microenterprises and when firms’ borrowing is concentrated in fewer banks. We also find that banks internalize this borrower behavior in the recognition of discretionary loan impairments. Our analysis controls for potential zombie lending, loan characteristics, endogenous matching between banks and firms, and time-varying firm and bank fixed effects to identify borrowers’ choices to repay loans. We confirm our results by exploiting a bank merger and showing that firms that prioritize payments to their main banks perform better in the two years after their first payment delay.
Keywords:
lending relationships
selective default
loan impairments
microenterprises
bank mergers
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