Department of Finance

A short report from Zhang Changhao on his Research Findings presented in the conference.

This paper provides a comprehensive examination of the impact of lending relationships for a set of borrowers that either underwent financial distress or filed for bankruptcy. I find that maintaining strong lending relationships helps borrowing firms avoid distress. Prior to distress, banks offer preferential contract terms in terms of lower interest rates and collateral to their relationship borrowers. After the onset of distress, banks offer identical loan contract terms to their relationship borrowers and outside borrowers. However, after filing for bankruptcy, banks again offer preferential terms to their relationship borrowers. My findings suggest that the uncertainties due to potential bankruptcy filing may be an important financial constraint for firms that are undergoing distress but have not yet filed for bankruptcy.

Prof Manju Puri from Duke University, lead the discussion in the PhD student consortium and gave comments on each paper presented in the consortium. She suggested me to explore more deeply the meaning of my empirical results. Professor Anthony Saunders from New York University was the chair in the PhD student special presentation session. Professor Diana Knyazeva from University of Rochester was the discussant of my paper. She gave me many good suggestions on the further empirical tests.