Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure
Allen N. Berger
University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center
Gregory F. Udell
Indiana University - Kelley School of Business - Department of Finance
Economic Journal, Forthcoming
This paper models the inner workings of relationship lending, the implications for bank organizational structure, and the effects of shocks to the economic environment on the availability of relationship credit to small businesses. Relationship lending depends on the accumulation over time by the loan officer of "soft" information. Because the loan officer is the repository of this soft information, agency problems are created throughout the organization that are best resolved by structuring the bank as a small, closely-held organization with few managerial layers. The shocks analyzed include technological innovations, regulatory regime shifts, banking industry consolidation, and monetary policy shocks.
Keywords: Banks, small business, mergers, relationship lending, organisational structure
JEL Classification: G21, G28, G34, L23
Date posted: January 3, 2002
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