Credit Market Concentration, Relationship Lending and the Cost of Debt

38 Pages Posted: 11 Mar 2016

See all articles by Stefano Bonini

Stefano Bonini

Stevens Institute of Technology - School of Business

Alberto Dell'Acqua

SDA Bocconi

Matteo Fungo

Bocconi University

Vlado Kysucky

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Date Written: February 21, 2016

Abstract

We investigate how the banking industry concentration and the strength of credit relationships (relationship lending) jointly affect the cost of borrowing of firms. Our results indicate that relationship lending is not associated with the rent extraction mechanism deriving from informational lock-in. Conversely, market concentration appears to be associated with firms’ higher cost of funding. But the effect is fully compensated if the relationship between the firm and the bank is long and comprehensive. Controlling for a number of covariates and for endogeneity concerns leaves results unchanged. Our results shed some new light on the unclear effects documented by Kysucky and Norden (2016) of relationship lending on the cost of financing.

Keywords: relationship lending, credit market concentration, SMEs financing, instrumental variable estimation.

JEL Classification: G32, G30

Suggested Citation

Bonini, Stefano and Dell'Acqua, Alberto and Fungo, Matteo and Kysucky, Vlado, Credit Market Concentration, Relationship Lending and the Cost of Debt (February 21, 2016). International Review of Financial Analysis, Forthcoming; Stevens Institute of Technology School of Business Research Paper No. 2745608. Available at SSRN: https://ssrn.com/abstract=2745608 or http://dx.doi.org/10.2139/ssrn.2745608

Stefano Bonini (Contact Author)

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Alberto Dell'Acqua

SDA Bocconi ( email )

Via Bocconi 8
Milan, Milan 20136
Italy

Matteo Fungo

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Vlado Kysucky

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T09-56
Rotterdam, 3000 DR
Netherlands
+31 10 4081952 (Phone)
+31 10 4089017 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
120
Abstract Views
662
rank
252,066
PlumX Metrics