When Arm’s Length Is Too Far. Relationship Banking over the Credit Cycle

Beck, T., Degryse, H., Van Horen, N. & De Haas, R. (2017). When Arm’s Length Is Too Far. Relationship Banking over the Credit Cycle. Journal of Financial Economics,

[img] Text - Accepted Version
Restricted to Repository staff only

Download (1MB) | Request a copy

Abstract

We conduct face-to-face interviews with bank CEOs to classify 397 banks across 21 countries as either relationship or transaction lenders. We then use the geographic coordinates of these banks’ branches and of 14,100 businesses to analyze how the lending techniques of banks in the vicinity of firms are related to credit constraints at two contrasting points of the credit cycle. We find that while relationship lending is not associated with credit constraints during a credit boom, it alleviates such constraints during a downturn. This positive role of relationship lending is stronger for small and opaque firms and in regions with a more severe economic downturn. Moreover, our evidence suggests thatrelationship lending mitigates the impact of a downturn on firm growth and does not constitute evergreening of loans.

Item Type: Article
Uncontrolled Keywords: Relationship banking, credit constraints, credit cycle
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/16994

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics