On-Site Inspecting Zombie Lending
Peer reviewed, Journal article
Accepted version
Permanent lenke
https://hdl.handle.net/11250/3047189Utgivelsesdato
2022Metadata
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- NTNU Handelshøyskolen [1706]
- Publikasjoner fra CRIStin - NTNU [38679]
Originalversjon
https://doi.org/10.1287/mnsc.2022.4452Sammendrag
“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.