Are Relationship and Transactional Banks Different? Evidence from Loan Loss Provisions and Write-Offs

47 Pages Posted: 7 May 2004

See all articles by Kathryn L. Dewenter

Kathryn L. Dewenter

University of Washington - Michael G. Foster School of Business

Alan C. Hess

University of Washington - Michael G. Foster School of Business

Date Written: November 25, 2003

Abstract

We compare the write-off and loan loss provision practices of relationship versus transactional banks. Relationship banks provide both debt and equity financing to their clients, have long-lasting ties with them, serve on their boards of directors and in some cases serve as senior managers, and renegotiate debt contracts during periods of financial stress. While these extensive links should provide the relationship banks better quality information about their borrowers, the links might also change their incentives and make them relatively more reluctant to provision for and write off nonperforming loans. Our results indicate that the incentive effects dominate the information effects.

Keywords: loan loss provisions, write-offs, relationship or universal banks

JEL Classification: G21, G28, G33

Suggested Citation

Dewenter, Kathryn L. and Hess, Alan C., Are Relationship and Transactional Banks Different? Evidence from Loan Loss Provisions and Write-Offs (November 25, 2003). Available at SSRN: https://ssrn.com/abstract=478101 or http://dx.doi.org/10.2139/ssrn.478101

Kathryn L. Dewenter (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Dept. of Finance & Business Economics
Seattle, WA 98195-3200
United States
206-685-7893 (Phone)
206-685-9392 (Fax)

Alan C. Hess

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States
206-543 4579 (Phone)
206-543-6809 (Fax)

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