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Hold-Up Versus Benefits in Relationship Banking: A Natural Experiment Using REIT Organizational FormYongheng DengNational University of Singapore (NUS) - Institute of Real Estate Studies; National University of Singapore Maggie Rong HuNational University of Singapore - Department of Finance; National University of Singapore (NUS) - Centre for Asset Management Research & Investments (CAMRI) Anand SrinivasanNational University of Singapore - Department of Finance May 15, 2011 Abstract: We use different organizational forms of REITs (internally-advised versus externally-advised) as a natural experiment to devise a clean test of the impact of hold up versus benefits in relationship banking. Due to regulatory reasons, externally advised REITs have lower information opacity and consequently are less subject to hold up effect. Contrary to hold up and consistent with benefits accruing to borrowers, we find that the relatively more opaque internally advised REITs derive greater benefits from lending relationship for both price (loan rate), and non price terms of loan contracts (collateral, covenants and loan size). Further, relationship banks of internally advised REITs have a higher likelihood of securing repeat business from such REITs providing further evidence of the benefits of relationship lending.
Number of Pages in PDF File: 46 Keywords: Lending relationship, hold-up effect, Real Estate Investment Trust, organizational form, loan contract terms JEL Classification: G20, G32, L22, L23 working papers seriesDate posted: November 16, 2011Suggested CitationContact Information
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