Download this Paper Open PDF in Browser

Switching from Single to Multiple Bank Lending Relationships: Determinants and Implications

40 Pages Posted: 13 Dec 2005  

Maria Luísa Alcoforado Farinha

Bank of Portugal

João A. C. Santos

Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: July 2001

Abstract

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

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

Maria Luísa Alcoforado Farinha

Bank of Portugal ( email )

Av. Almirante Reis, 71
1150 Lisbon
Portugal
351-21-3128350 (Phone)

João A. C. Santos (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-5583 (Phone)
212-720-8363 (Fax)

HOME PAGE: HTTP://WWW.NEWYORKFED.ORG/RMAGHOME/ECONOMIST/SANTOS/CONTACT.HTML

Paper statistics

Downloads
417
Rank
57,480
Abstract Views
2,938