So What Do I Get? The Bank's View of Lending Relationships

Posted: 8 Sep 2004 Last revised: 29 Feb 2012

See all articles by Sreedhar T. Bharath

Sreedhar T. Bharath

Arizona State University (ASU) - Finance Department

Sandeep Dahiya

Georgetown University - Department of Finance

Anthony Saunders

New York University - Leonard N. Stern School of Business

Anand Srinivasan

National University of Singapore - Department of Finance

Abstract

While many empirical studies document borrower benefits of lending relationships, less is known about lender benefits. A relationship lender's informational advantage over a non-relationship lender may generate a higher probability of selling information-sensitive products to its borrowers. Our results show that the probability of a relationship lender providing a future loan is 42%, while for a non-relationship lender, this probability is 3%. Consistent with theory, we find that borrowers with greater information asymmetries are significantly likely to obtain future loans from their relationship lenders. Relationship lenders are likely to be chosen to provide debt/equity underwriting services, but this effect is economically small.

Keywords: Lending relationships, bank loans, information asymmetry

JEL Classification: G21, G24

Suggested Citation

Bharath, Sreedhar T. and Dahiya, Sandeep and Saunders, Anthony and Srinivasan, Anand, So What Do I Get? The Bank's View of Lending Relationships. Journal of Financial Economics (JFE), Vol. 85, No. 2, pp. 368-419, 2007, Available at SSRN: https://ssrn.com/abstract=586826

Sreedhar T. Bharath

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Sandeep Dahiya

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-3832 (Phone)

Anthony Saunders (Contact Author)

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

Anand Srinivasan

National University of Singapore - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

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