Journal of Financial Economics Vol. 153 2024
Evergreening
Abstract
We develop a simple model of concentrated lending where lenders have incentives for evergreening loans by offering better terms to firms that are close to default. We detect such lending behavior using loan-level supervisory data for the United States. Banks that own a larger share of a firm's debt provide distressed firms with relatively more credit at lower interest rates. Building on this empirical validation, we incorporate the theoretical mechanism into a dynamic heterogeneous-firm model to show that evergreening affects aggregate outcomes, resulting in lower interest rates, higher levels of debt, and lower productivity.
- DOI
- 10.1016/j.jfineco.2024.103778
- Volume
- 153
- Pages
- 103778
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref