Bank Lending Standards and Access to Lines of Credit

39 Pages Posted: 21 Mar 2009 Last revised: 19 Jan 2012

See all articles by Cem Demiroglu

Cem Demiroglu

Koc University, College of Administrative Sciences and Economics

Christopher M. James

University of Florida - Department of Finance, Insurance and Real Estate

Atay Kizilaslan

Independent

Date Written: January 2012

Abstract

This paper examines how changes in bank lending standards are related to the availability of bank lines of credit for private and comparable public firms. Overall, we find that access to lines of credit is more contingent on bank lending standards for private than for public firms. The impact of bank lending standards is however asymmetric: While private firms are less likely than public firms to gain access to new lines when credit market conditions are tight, we find no difference between public and private firms in terms of their use or retention of pre-existing lines. We also find that private firms without lines of credit use more trade credit when bank lending standards are tight, which is suggestive of a supply effect. Overall, the evidence suggests that “credit crunches” are likely to have a disproportionate impact on private firms. However, pre-existing banking relationships appear to mitigate the impact of these contractions on private firms.

Keywords: Bank lending standards, liquidity management, lines of credit, banking relationships, private firms

JEL Classification: G21, G32, E44

Suggested Citation

Demiroglu, Cem and James, Christopher M. and Kizilaslan, Atay, Bank Lending Standards and Access to Lines of Credit (January 2012). Journal of Money, Credit, and Banking, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1361844 or http://dx.doi.org/10.2139/ssrn.1361844

Cem Demiroglu

Koc University, College of Administrative Sciences and Economics ( email )

Koc University
Sariyer
Istanbul, 34450
Turkey
90-212-338-1620 (Phone)
90-212-338-1653 (Fax)

HOME PAGE: http://https://sites.google.com/site/cemdemiroglu/

Christopher M. James (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611-7168
United States
352-392-3486 (Phone)
352-392-0301 (Fax)

Atay Kizilaslan

Independent ( email )

No Address Available

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