So What Do I Get? The Bank's View of Lending Relationships
Posted: 8 Sep 2004 Last revised: 29 Feb 2012
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: Suggested Citation