When Does Relationship Lending Start to Pay?

33 Pages Posted: 15 Jan 2016 Last revised: 19 Jan 2016

See all articles by Germán López-Espinosa

Germán López-Espinosa

University of Navarra

Sergio Mayordomo

Banco de España

Antonio Moreno

School of Economics and Business, University of Navarra

Date Written: January 13, 2016

Abstract

This paper empirically characterizes relationship lending using data from more than 20,000 loans of a Spanish bank to small and medium enterprises (SMEs). The study analyzes the pricing determinants of loans to firms based on the entire previous bank-firm relationship, allowing for the identification of non-linear pricing patterns in the bank-firm relation. We show that firms only start capitalizing the gains of relationship lending when the relationship goes beyond two years. We uncover the role of the amortized amount of loans as a novel relevant relationship lending dimension in reducing loan rates. In our analysis, relationship lending significantly mitigates the increased costs of refinancing loans along two dimensions: Relationship age and having additional contracts – other than loans – with the bank.

Keywords: Asymmetric Information, Banks, Interest Rate spreads, Loans, Relationship Lending Dimensions

JEL Classification: D82, G30, G20, G21, G24, L14, N20

Suggested Citation

López-Espinosa, Germán and Mayordomo, Sergio and Moreno, Antonio, When Does Relationship Lending Start to Pay? (January 13, 2016). Available at SSRN: https://ssrn.com/abstract=2715470 or http://dx.doi.org/10.2139/ssrn.2715470

Germán López-Espinosa

University of Navarra ( email )

Facultad de Ciencias Económicas y Empresariales
Edificio Amigos
Pamplona, Navarra 31080
Spain
+34 948425600 (Phone)
+34 948425626 (Fax)

Sergio Mayordomo (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Antonio Moreno

School of Economics and Business, University of Navarra ( email )

Ed. Amigos
Pamplona, Navarra 31009
Spain

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