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GROUP AFFILIATION IN PERIODS OF CREDIT CONTRACTION AND BANK’S REACTION: EVIDENCE FROM THE GREEK CRISIS

 

Panagiotis Avramidis

ALBA Graduate Business School

 

Ioannis Asimakopoulos

Bank of Greece

 

Dimitris Malliaropulos

Bank of Greece and University of Piraeus

 

Nickolaos G. Travlos

University of Surrey and ALBA Graduate Business School

 

Abstract

Using a data set of bank loans to Greek firms during the period of the Greek sovereign crisis, we provide empirical evidence that firms affiliated with groups are less likely to default on their bank loan during a credit crunch, compared to stand-alone firms. We show that the lower default risk of affiliated firms is due to access to the internal capital market in the form of intra-group loans and to enhanced access to the restricted external financing. Furthermore, we provide empirical evidence that banks evaluate positively the group membership and that they collect private information about the delinquent affiliated firms from other firms that belong to the group. Finally, we find that banks are more likely to show forbearance against affiliated firms with non-performing loans, in order to delay additional loan charge-offs and to preserve their relationship with the rest of the group.

 

JEL-classification: G01, G21, G32, C23

Keywords: group affiliation, co-insurance, non-performing loans, forbearance

Acknowledgement: This study was conducted under the Bank of Greece's programme of cooperation with universities. We want to thank participants in a seminar at the Bank of Greece for valuable comments on an earlier version of the paper. The views expressed in this article are those of the authors and do not necessarily reflect those of the Bank of Greece or the Eurosystem. Any errors or omissions are the responsibility of the authors.

 

Correspondence:

Panagiotis Avramidis

ALBA Graduate Business School

at The American College of Greece

6-8 Xenias Str., 115 28 Athens, Greece

TEL.: (+30) 210-896 4531-8

e-mail : pavramid@alba.edu.gr


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