On-site inspecting zombie lending

Diana Bonfim, Geraldo Cerqueiro, Hans Degryse, Steven Ongena

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7 Citations (Scopus)
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Abstract

"Zombie lending" remains a widespread practice by banks around the world. In this paper, we exploit a series of large-scale on-site inspections made on the credit portfolios of several Portuguese banks to investigate how these inspections affect banks' future lending decisions. We find that an inspected bank becomes 20% less likely to refinance zombie firms, immediately spurring their default. Overall, banks seemingly reduce zombie lending because the incentives to hold these loans disappear once they are forced to recognize losses.
Original languageEnglish
Pages (from-to)2547-2567
Number of pages21
JournalManagement Science
Volume69
Issue number5
DOIs
Publication statusPublished - May 2023

Keywords

  • Banking supervision
  • On-site inspection
  • Zombie lending

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  • On-site inspecting zombie lending

    Bonfim, D., Cerqueiro, G., Degryse, H. & Ongena, S. R. G., 27 Feb 2020, 67 p. (Swiss Finance Institute Research Paper; no. 20-16).

    Research output: Working paperPreprint

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    21 Downloads

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