Abstract

http://ssrn.com/abstract=1298836
 
 

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Relationship Lending and Lines of Credit in Small Firm Finance


Allen N. Berger


University of South Carolina - Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Gregory F. Udell


Indiana University - Kelley School of Business - Department of Finance

1994

NYU Working Paper No. FIN-94-016

Abstract:     
This paper examines the role of relationship lending in small firm finance. We examine price and nonprice terms of bank lines of credit (L/C) extended to small firms. Our focus on bank L/Cs allows us toe examine a type of loan contract in which the bank-borrower relationship is likely to be an important mechanism for solving asymmetric information problems associated with financing small enterprises. We find that borrowers with longer banking relationships pay lower interest rates and are less likely to pledge collateral. These results are consistent with theoretical arguments that relationship lending generates valuable information about borrower quality.

Number of Pages in PDF File: 53

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Date posted: November 11, 2008  

Suggested Citation

Berger, Allen N. and Udell, Gregory F., Relationship Lending and Lines of Credit in Small Firm Finance (1994). NYU Working Paper No. FIN-94-016. Available at SSRN: http://ssrn.com/abstract=1298836

Contact Information

Allen N. Berger (Contact Author)
University of South Carolina - Moore School of Business ( email )
1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)
Wharton Financial Institutions Center
Philadelphia, PA 19104-6367
United States
European Banking Center
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
Gregory F. Udell
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States

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