Relationship Lending within a Bank-Based System: Evidence from European Small Business Data

Posted: 19 Apr 2000

See all articles by Hans Degryse

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

Patrick J. G. Van Cayseele

KU Leuven - Department of Economics

Abstract

We investigate relationship lending using detailed contract information from nearly 18,000 bank loans of small Belgian firms operating within the continental European bank-based system. Specifically, we investigate the impact of different measures of relationship strength on price and non-price terms of the loan contract. We test for the possibility of rent shifting by banks. The evidence shows two opposing effects. On the one hand, the loan rate increases with the duration of a bank-firm relationship. On the other hand, the scope of a relationship, defined as the purchase of other information-sensitive products from a bank, decreases the loan's interest rate substantially. Relationship duration and scope thus have opposite effects on loan rates, with the latter being more important. We also find that the collateral requirement is decreasing in the duration of the relationship and increasing in its scope.

JEL Classification: G21, G32

Suggested Citation

Degryse, Hans and Van Cayseele, Patrick G. J., Relationship Lending within a Bank-Based System: Evidence from European Small Business Data. Journal of Financial Intermediation, Vol. 9, No. 1. Available at SSRN: https://ssrn.com/abstract=212008

Hans Degryse (Contact Author)

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Patrick G. J. Van Cayseele

KU Leuven - Department of Economics ( email )

Leuven, B-3000
Belgium
+32-16-326830 (Phone)
+32-16-326796 (Fax)

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