Is a Friend in Need a Friend Indeed?  How Relationship Borrowers Fare during the COVID-19 Crisis

Berger, Allen N.; Bouwman, Christa H. S.; Norden, Lars; Roman, Raluca; Udell, Gregory F.

doi:10.21799/frbp.wp.2021.13

Working Paper

Is a Friend in Need a Friend Indeed? How Relationship Borrowers Fare during the COVID-19 Crisis

Abstract: We analyze loan contract terms, investigating whether relationship borrowers fare better or worse than others in times of need, using the COVID-19 crisis as a quasi-natural experiment. COVID-19 is superior to prior crises for such analysis because its public health and government restrictions shocks directly harm borrowers, rather than banks. Our dataset includes Y-14Q, covering syndicated and non syndicated loans and small and large firms, unlike some other datasets. We find the dark side of relationships dominates across four relationship measures, 14 COVID-19 shocks, and PPP participation. There are limited pockets of bright-side findings associated with smaller firms and smaller banks.

Keywords: banks; bank loans; relationship lending; loan contract terms; financial crises; COVID-19; Paycheck Protection Program;

JEL Classification: G01; G21; G28;

https://doi.org/10.21799/frbp.wp.2021.13