NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Related Lending

Rafael La Porta, Florencio Lopez-de-Silane, Guillermo Zamarripa

NBER Working Paper No. 8848
Issued in March 2002
NBER Program(s):   CF   IFM

In many countries, banks lend to firms controlled by the bank?s owners. We examine the benefits of related lending using a newly assembled dataset for Mexico. Related lending is prevalent (20% of commercial loans) and takes place on better terms than arm?s-length lending (annual interest rates are 4 percentage points lower). Related loans are 33% more likely to default and, when they do, have lower recovery rates (30% less) than unrelated ones. The evidence supports the view that rather than enhance information sharing, related lending is a manifestation of looting.

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Document Object Identifier (DOI): 10.3386/w8848

Published: La Porta, Rafael, Florencio Lopez-de-Silanes and Guillermo Zamarripa. "Related Lending," Quarterly Journal of Economics, 2003, v118(1,Feb), 231-268.

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