Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure
Allen N. Berger
University of South Carolina - Moore School of Business; Wharton Financial Institutions Center; Tilburg University - CentER
Gregory F. Udell
Indiana University Bloomington - Department of Finance
The Economic Journal, Vol. 112, pp. F32-F53, 2002
This paper models the inner workings of relationship lending, the implications for bank organisational 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 organisation that may best be resolved by structuring the bank as a small, closely-held organisation with few managerial layers. The shocks analysed include technological innovations, regulatory regime shifts, banking industry consolidation, and monetary policy shocks.
Number of Pages in PDF File: 22Accepted Paper Series
Date posted: November 7, 2002
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