40 Pages Posted: 13 Dec 2005
Date Written: July 2001
Our results show that the majority of firms borrow for the first time from a single bank, but soon afterwards some of them start borrowing from several banks. Duration analysis shows that the likelihood of a firm substituting a single with multiple relationships increases with the duration of the single relationship and that firms with more growth opportunities and more bank debt are more likely to initiate multiple relationships. Firms with poor performance, too, are more likely to initiate multiple relationships. The analysis of the ex post effects of the initiation of multiple relationships does not detect an increase in the firm's overall indebtedness and investment, but it finds an increase in its trade credit reliance and no improvement in its performance. Overall these results suggest to us that a potential unwillingness by the incumbent bank to increase its exposure to a firm because of its past poor performance appears to explain better firms' decision to initiate multiple relationships than the hypothesis that they do so to protect themselves against the hold-up rents inherent to exclusive relationships because they have many growth opportunities.
JEL Classification: G21, G32
Suggested Citation: Suggested Citation
Alcoforado Farinha, Maria Luísa and Santos, João A. C., Switching from Single to Multiple Bank Lending Relationships: Determinants and Implications (July 2001). BIS Working Paper No. 83. Available at SSRN: https://ssrn.com/abstract=208268 or http://dx.doi.org/10.2139/ssrn.208268
By Jeremy Stein
By Jeremy Stein