52 Pages Posted: 23 Jul 2014
Date Written: July 22, 2014
Using a novel way to identify relationship and transaction banks, we study how banks’ lending techniques affect funding to SMEs over the business cycle. For 21 countries we link the lending techniques that banks use in the direct vicinity of firms to these firms’ credit constraints at two contrasting points of the business cycle. We show that relationship lending alleviates credit constraints during a cyclical downturn but not during a boom period. The positive impact of relationship lending in an economic downturn is strongest for smaller and more opaque firms and in regions where the downturn is more severe.
Keywords: relationship banking, credit constraints, business cycle
JEL Classification: F36, G21, L26, O12, O16
Suggested Citation: Suggested Citation
Beck, Thorsten and Degryse, Hans and de Haas, Ralph and van Horen, Neeltje, When Arm's Length is Too Far. Relationship Banking Over the Business Cycle (July 22, 2014). CESifo Working Paper Series No. 4877. Available at SSRN: https://ssrn.com/abstract=2469744