Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/233725
Authors: 
Colonnello, Stefano
Koetter, Michael
Stieglitz, Moritz
Year of Publication: 
2020
Citation: 
[Journal:] Economic Inquiry [ISSN:] 1465-7295 [Volume:] 59 [Issue:] 1 [Pages:] 459-477
Abstract: 
Theoretically, bank's loan monitoring activity hinges critically on its capitalization. To proxy for monitoring intensity, we use changes in borrowers' investment following loan covenant violations, when creditors can intervene in the governance of the firm. Exploiting granular bank‐firm relationships observed in the syndicated loan market, we document substantial heterogeneity in monitoring across banks and through time. Better capitalized banks are more lenient monitors that intervene less with covenant violators. Importantly, this hands‐off approach is associated with improved borrowers' performance. Beyond enhancing financial resilience, regulation that requires banks to hold more capital may thus also mitigate the tightening of credit terms when firms experience shocks. (JEL G21, G32, G33, G34)
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by-nc/4.0/
Document Type: 
Article
Document Version: 
Published Version

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