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The Evergreening
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DOI：10.1016/j.jfineco.2024.103778.png)
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Abstract
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We develop a simple model of concentrated lending where lenders have incentives for evergreening loans by offering better terms to firms that are close to default. We detect such lending behavior using loan -level supervisory data for the United States. Banks that own a larger share of a firm's debt provide distressed firms with relatively more credit at lower interest rates. Building on this empirical validation, we incorporate theoretical mechanism into a dynamic heterogeneous -firm model to show that evergreening affects aggregate outcomes, resulting in lower interest rates, higher levels of debt, and lower productivity.
Keywords:
Evergreening
Zombie firms
Bank lending
Misallocation
Journal
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