When arm's length is too far: Relationship banking over the credit cycle
Beck,T.H.L. Degryse,H.A. de Haas,Ralph van Horen,Neeltje
Beck,T.H.L.
Degryse,H.A.
de Haas,Ralph
van Horen,Neeltje
Abstract
Using a novel way to identify relationship and transaction banks, we study how banks’ lending techniques affect funding to SMEs over the business cycle. For 21 countries we link the lending techniques that banks use in the direct vicinity of firms to these firms’ credit constraints at two contrasting points of the business cycle. We show that relationship lending alleviates credit constraints during a cyclical downturn but not during a boom period. The positive impact of relationship lending in an economic downturn is strongest for smaller and more opaque firms and in regions where the downturn is more severe.
Description
Date
2018-01
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Publisher
Research Projects
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Keywords
Relationship banking, credit constraints, Business cycle, F36 - Financial Aspects of Economic Integration, G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages, L26 - Entrepreneurship, O12 - Microeconomic Analyses of Economic Development, O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance, SDG 8 - Decent Work and Economic Growth
Citation
Beck, T H L, Degryse, H A, de Haas, R & van Horen, N 2018, 'When arm's length is too far : Relationship banking over the credit cycle', Journal of Financial Economics, vol. 127, no. 1, pp. 174-196. https://doi.org/10.1016/j.jfineco.2017.11.007