Competition and Relationship Lending: Friends or Foes?

46 Pages Posted: 3 Jul 2010

See all articles by Andrea Filippo Presbitero

Andrea Filippo Presbitero

Università Politecnica delle Marche - Department of Economics; Centre for Macroeconomics & Finance Research (CeMaFiR)

Alberto Zazzaro

Università Politecnica delle Marche - Faculty of Economics

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Date Written: June 30, 2010

Abstract

Recent empirical findings by Elsas (2005) and Degryse and Ongena (2007) document a U-shaped effect of market concentration on relationship lending which cannot be easily accommodated by the investment and strategic theories of relationship lending. In this paper, we suggest that this non-monotonicity can be explained by looking at the organizational structure of local credit markets. We provide evidence that marginal increases in interbank competition are detrimental to relationship lending in markets where large and out-of-market banks are predominant. On the contrary, where relational-based lending technologies are al-ready widely in use in the market by a large group of small mutual banks, an increase in competition may drive banks to further cultivate their extensive ties with customers.

Keywords: interbank competition, market organizational structure, relationship lending

JEL Classification: G21, L11

Suggested Citation

Presbitero, Andrea Filippo and Zazzaro, Alberto, Competition and Relationship Lending: Friends or Foes? (June 30, 2010). CESifo Working Paper Series No. 3103. Available at SSRN: https://ssrn.com/abstract=1633359

Andrea Filippo Presbitero (Contact Author)

Università Politecnica delle Marche - Department of Economics ( email )

Piazzale Martelli, 8
Ancona, AN 60121
Italy
+39 0712207074 (Phone)

HOME PAGE: http://sites.google.com/site/presbitero/

Centre for Macroeconomics & Finance Research (CeMaFiR) ( email )

Piazza Mirabello, 2
Milan, 20100
Italy

Alberto Zazzaro

Università Politecnica delle Marche - Faculty of Economics ( email )

Piazzale Martelli, 8
60121 Ancona
Italy

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