Supply Chain Characteristics and Bank Lending Decisions

Abstract

This paper investigates whether borrowers’ supply chain relationships affect banks’ lending decisions. These relationships benefit firms by reducing the information gap with banks, which increases the access to capital, while reducing the cost of the loan. However, banks demand increased intensity of covenants and greater use of collateral when the correlation of cash flows among firms in the supply chain is high. Longer relationships between the borrower and its supply chain partner, and between the bank and the borrower’s supply chain partner, mitigate lending constraints. The evidence suggests supply chains serve as an informational bridge between lenders and borrowers.

Keywords: Supply Chain, Bank Loans

JEL Classification: G21, G30