ABSTRACT
This study investigates the loan financing behaviours of Korean firms during the COVID-19 pandemic. I find that financially unhealthy firms and firms with insufficient collateral capacity borrowed less during the pandemic, suggesting that lenders consider credit risk in their lending decisions. Meanwhile, the results provide evidence of credit misallocation. Particularly, zombie firms were able to increase their borrowings and firms increased their borrowings irrespective of their profitability and uncertainty. These results suggest that, without careful monitoring, lenders will suffer loan loss problems to the extent that they misallocated bank credit.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 The increase in corporate lending amounted to 143.26 billion dollars, accounting for 11.58% of the total outstanding bank credit in 2020Q3.