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Information Verifiability, Bank Organization, Bank Competition
And Bank–Borrower Relationships

Posted: 12 Dec 2011  

Masaji Kano

Osaka Prefecture University

Hirofumi Uchida

Kobe University - Graduate School of Business Administration; Stanford University - Shorenstein Asia-Pacific Research Center

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance

Wako Watanabe

Osaka University - Institute of Social and Economic Research (ISER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 17, 2010

Abstract

This paper investigates whether the benefits of bank–borrower relationships differ depending on three factors identified in the theoretical literature: verifiability of information, bank size and complexity, and bank competition. We extend the current literature by analyzing how relationship lending affects loan contract terms and credit availability in an empirical model that simultaneously accounts for all three of these factors. Based on Japanese survey data we find evidence that the benefits from stronger bank–borrower relationships in terms of credit availability are limited to smaller banks. However, when the benefits are measured as improved credit terms, we find little additional benefit, and in some cases increased cost, from stronger relationships for opaque borrowers and for borrowers who get funding from small banks. These latter findings suggest the possibility that relationship borrowers may suffer from capture effects.

Keywords: Banks, Small business, Bank–borrower relationships, Loan interest rate, Credit availability

JEL Classification: G21, L14, L13, L22, D82

Suggested Citation

Kano, Masaji and Uchida, Hirofumi and Udell, Gregory F. and Watanabe, Wako, Information Verifiability, Bank Organization, Bank Competition And Bank–Borrower Relationships (September 17, 2010). Journal of Banking and Finance, Vol. 35, No. 5, 2010. Available at SSRN: https://ssrn.com/abstract=1971075

Masaji Kano

Osaka Prefecture University ( email )

1-1 Gakuen-Cho
Sakai, Osaka 599-8531
Japan

Hirofumi Uchida (Contact Author)

Kobe University - Graduate School of Business Administration ( email )

2-1, Rokkodai-cho, Nada-ku
Kobe, 657-8501
Japan
81-78-803-6949 (Phone)

HOME PAGE: http://www.b.kobe-u.ac.jp/~uchida

Stanford University - Shorenstein Asia-Pacific Research Center ( email )

Stanford, CA 94305
United States

Gregory Udell

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Wako Watanabe

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

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