Relationship Lending: Does the Number of Banks Matter? Evidence from Us

28 Pages Posted: 6 Jul 2005

See all articles by Judit Montoriol-Garriga

Judit Montoriol-Garriga

La Caixa; Autonomous University of Barcelona - Department of Business Economics

Abstract

This paper shows the importance of banking market competition jointly with the number of bank relationships to identify the circumstances where banks and firms are able to establish mutually beneficial long-term relationships. We empirically analyze the effect of the duration of the relationship on the availability of credit and the interest rate on loans using a US survey of small firms. We find that relationship lending is more likely to arise when banking market competition is low and when firms restrict themselves to borrow from relatively few lenders. We show that banking competition and lending relationships are compatible provided that the firm confers monopoly power to the financial institution by committing to borrow exclusively from it.

Keywords: Relationship Lending, Bank Competition, Multiple Banking, Assymetric Information, Small Business Finance

JEL Classification: D82, G14, G21, L14

Suggested Citation

Montoriol-Garriga, Judit and Montoriol-Garriga, Judit, Relationship Lending: Does the Number of Banks Matter? Evidence from Us. EFA 2005 Moscow Meetings Paper, Available at SSRN: https://ssrn.com/abstract=676707 or http://dx.doi.org/10.2139/ssrn.676707

Judit Montoriol-Garriga (Contact Author)

Autonomous University of Barcelona - Department of Business Economics ( email )

Edifici B - Campus de la UAB
Bellaterra (Cerdanyola del Vallès)
Barcelona, Barcelona 08193
Spain

HOME PAGE: http://www.asr.uab.cat/casr/index.php?option=com_content&view=article&id=363:judith-montoriol-garrig

La Caixa ( email )

Av Diagonal 629
Barcelona, 08028
Spain

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