MORAL HAZARD AND STRATEGIC DEFAULT: EVIDENCE FROM GREEK CORPORATE LOANS
Ioannis Asimakopoulos
Bank of Greece
Panagiotis K. Avramidis
ALBA Graduate Business School at the American College of Greece
Dimitris Malliaropulos
Bank of Greece, University of Piraeus
Nickolaos G. Travlos
ALBA Graduate Business School at the American College of Greece
Abstract
Using a unique dataset of corporate loans of 13,070 Greek firms for the period 2008-2015 and an identification strategy based on the internal credit ratings of banks, we provide evidence that one out of six firms with non-performing loans are strategic defaulters. Furthermore, we investigate potential determinants of firms’ behavior by relating the probability of strategic default to a number of firm characteristics such as size, age, liquidity, profitability and collateral value. We provide evidence of a positive relationship of strategic default with outstanding debt and economic uncertainty and a negative relationship with the value of collateral. Also, profitability and collateral can be used to distinguish the strategic defaulters from the financially distressed defaulters. Finally, we find evidence that the relationship of strategic default risk with firm size and age has an inverse U-shape, i.e. strategic default is more likely among medium-sized firms compared to small and large firms and it is also more likely among middle-aged firms compared to new-founded and established firms.
JEL classification: G01, G21, G32, C23
Keywords: Strategic default, Non-performing loans, Corporate loans, Leverage
Acknowledgments: We are most grateful to S. Papagiannidou for assisting in making the dataset available for use in the present research. We would also like to thank Α. Vlysidis, Ι. Tsikripis, A. Kallergi and G. Bourlos for valuable comments, clarifications and suggestions in using the dataset. We also thank H. Gibson for valuable drafting comments and suggestions. The views expressed in this paper are those of the authors and not necessarily those of either the Bank of Greece or the Eurosystem.
Correspondence:
Dimitris Malliaropulos
Economic Analysis and Research Department
Bank of Greece
21 El. Venizelos Av., 10250 Athens,
Greece
Tel.:0030-210-3202380
Fax: 0030-210-3203939
Email: dmalliaropulos@bankofgreece.gr