Relationship lending in a financial turmoil

Giorgio Gobbi and Enrico Sette

No 59, Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences

Abstract: This paper sheds new light on the value of relationship lending by studying whether, after Lehman's default, banks provided a steadier flow of credit and charged lower interest rates, to those firms they established a closer relation with. By exploiting the presence of multiple banking relationships, we are able to control for firms' and banks' unobserved characteristics. Results show that credit growth has been higher if: i) the lending relation was longer; ii) the distance between the bank and the firm shorter; iii) the bank held a larger share of total credit. Similarly, banks increased the cost of credit less to firms they had a longer relation with and they were closer to. We also explore whether the eÏect of relationship lending depended upon bank or firm characteristics, or on the concentration of the local credit market. Finally, we test whether the eÏect of relationship lending changed during the crisis with respect to a pre-crisis period.

Keywords: cost of credit; credit supply; financial crisis; relationship lending (search for similar items in EconPapers)
Pages: 41
Date: 2012-03
New Economics Papers: this item is included in nep-ban, nep-his and nep-pke
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Citations: View citations in EconPapers (38)

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Related works:
Working Paper: Relationship lending in a financial turmoil (2010)
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