Biography

Tiago Pinheiro is a researcher at the Financial Stability Department of Banco de Portugal since 2019. He earned his Ph.D. in Economics from the University of Chicago in 2010, and worked as an academic until 2015. Tiago then worked at Moody’s Analytics betwen 2015 and 2019. His academic research interests are in Information and Financial Economics, with recebt work on sovereign guarantees, loan recoveries and debt restructurings. For more information check his website: www.tiagopinheiro.com.

Abstract

We analyze the effect of loan renegotiation on firm performance using a large dataset of bank loans to firms in distress between 2019 and 2024. We find that loan renegotiation has a detrimental effect on the performance of the average firm in distress. It reduces the firms’ return on assets and it increases their default probability even two years after renegotiation. This effect, however, is heterogeneous and firms with higher perceived gains from loan renegotiation do experience an increase in performance. As a result, a policy that marginally increases the likelihood of loan renegotiation is estimated to have a positive effect on the average firm performance.

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