The Real Effects of Relationship Lending
61 Pages Posted: 6 Oct 2017
Date Written: September 27, 2017
This paper studies the real consequences of relationship lending on firm activity in Italy following Lehman Brothers’ default shock and Europe’s sovereign debt crisis. We use a large data set that merges the comprehensive Italian Credit and Firm Registers. We find that following Lehman’s default, banks offered more favourable continuation lending terms to firms with which they had stronger relationships. Such favourable conditions enabled firms to maintain higher levels of investment and employment. The insulation effects of tighter bank-firm relationships was still present during the European sovereign debt crisis, especially for firms tied to well capitalised banks.
Keywords: relationship banking, real effects of credit, credit supply
JEL Classification: E44, G21
Suggested Citation: Suggested Citation