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When Arm's Length is Too Far. Relationship Banking Over the Business Cycle

52 Pages Posted: 23 Jul 2014  

Thorsten Beck

City University London - Sir John Cass Business School; Tilburg University - European Banking Center, CentER

Hans Degryse

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

Ralph de Haas

European Bank for Reconstruction and Development; Tilburg University - Department of Finance

Neeltje van Horen

De Nederlandsche Bank; Centre for Economic Policy Research (CEPR)

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Date Written: July 22, 2014

Abstract

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

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

Thorsten Beck

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Tilburg University - European Banking Center, CentER ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Hans Degryse (Contact Author)

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

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Ralph de Haas

European Bank for Reconstruction and Development ( email )

One Exchange Square
London, EC2A 2JN
United Kingdom

HOME PAGE: www.ebrd.com

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Neeltje van Horen

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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