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Does repeated borrowing from the same lender affect loan contract terms? We find that such borrowing translates into a 10 to 17 bps lowering of loan spreads. These results hold using multiple approaches (Propensity Score Matching, Instrumental Variables, and Treatment Effects Model) that control for the endogeneity of relationships. We find that relationships are especially valuable when borrower transparency is low and the moral hazard among lending syndicate members is high. We also provide a demarcation line between relationship and transactional lending. We find that spreads charged for relationship loans and non-relationship loans become indistinguishable if the borrower is in the top 30% when ranked by asset size. Similar dissipation of relationship benefits occurs if the borrower has public rated debt or is part of the S&P 500 index. We find that past relationships reduce collateral requirements. Relationships are also associated with shorter debt maturity especially for the lowest quality borrowers. Our results are robust to an estimation methodology which allows loan spread, collateral requirements, and loan maturity to be determined jointly using an instrumental variables approach. We also find relationship borrowers obtain larger loans (scaled by the borrower's asset size) compared to non-relationship borrowers. Our results imply that, even for firms that have multiple sources of outside financing, borrowing from a prior lender obtains better loan terms.

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While a number of empirical studies have documented benefits of lending relationships to borrowers (lower loan rates, better credit availability, etc.), not much is known about benefits of such relationships for lenders. For a relationship lender, its comparative advantage in information gathering/processing yields two potential benefits. First, a relationship lender would have a higher probability of selling future information-sensitive products (e.g. loans, security underwriting, etc.) to its borrowers compared to a non-relationship lender. We refer to this as higher volume benefit of relationship lending. Second, if borrower-specific information is only available to relationship lender, it can use this information monopoly to charge higher rates on future loans. We refer to this as increased pricing benefit of relationship lending. Our results show that, on average, a lender with a past relationship with a borrower has a 42% probability of providing it with future loans, while a lender lacking a past relationship with a borrower has only a 3% probability of providing it with a future loan. Consistent with theory, we find that borrowers with greater information asymmetries (e.g. small borrowers, or non-rated borrowers) are significantly more likely to use their relationship banks for future loans. Although the association between past lending relationship and probability of being chosen to provide debt and equity underwriting services in the future is statistically significant, the economic impact is much smaller compared to loan markets. However, our findings do not provide strong support for an increased pricing benefit for relationship lenders. On average, the rate of interest for similar borrowers is 6-10 basis points lower if the loan is provided by a relationship lender. Underwriting fee for initial public offerings (IPO) with relationship lender(s) as lead underwriter(s) is 26 basis points lower. This suggests that lenders are prepared to share some of the benefits of relationship lending with borrowers. * Bharath is with University of Michigan, Dahiya is with Georgetown University, Saunders is with New York University, and Srinivasan is with University of Georgia. Dahiya acknowledges the support of the Lee Higdon, Jr. So What Do I Get? The Bank's View of Lending RelationshipsAbstract While a number of empirical studies have documented benefits of lending relationships to borrowers (lower loan rates, better credit availability, etc.), not much is known about benefits of such relationships for lenders. For a relationship lender, its comparative advantage in information gathering/processing yields two potential benefits. First, a relationship lender would have a higher probability of selling future information-sensitive products (e.g. loans, security underwriting, etc.) to its borrowers compared to a non-relationship lender.We refer to this as higher volume benefit of relationship lending. Second, if borrowerspecific information is only available to relationship lender, it can use this informatio...

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