Forced Bank Relationship Loss: Accounting Information Opacity and Loan Conditions
52 Pages Posted: 14 Jun 2017 Last revised: 21 Mar 2019
Date Written: January 9, 2018
We examine the impact on a firm when it is exogenously forced to switch its bank relationship from one branch to another branch of the same bank. We show the effect depends directly on the relative balance between the hard accounting information provided to the bank by the firm, as part of the bank's internal credit rating system and the provision of soft information about the firm due to its prior branch relationship. We find that the loss of soft information provided to loan officers at the new branch, as a result of the forced branch switch, has a significant effect on the cost, maturity, and availability of loans from the new branch. We believe that this paper presents the "sharpest" test yet of the impact of relationship loss on a firm's cost and availability of loans.
Keywords: bank relationship, accounting information, credit availability, loan cost
JEL Classification: G15, G20, G21, G30, G32, G34, M41
Suggested Citation: Suggested Citation