Banking Relationships and the Effect of Monitoring on Loan Pricing

Blackwell, David W.; Winters, Drew B.

doi:10.1111/j.1475-6803.1997.tb00249.x

Cited by 196 publications

(146 citation statements)

References 10 publications

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“…Worthington (1999) arrives at a similar result, concluding that the interest rate associated with a loan granted to a new client was between 40 and 50 points higher than that offered to a client with earlier experience of credit. Auria et al (1999), Blackwell and Winters (1997), Elsas (2005) find empirical evidence that shows that greater borrowing concentration with the lending bank allows also a reduction in interest rate.…”

Section: Length Of the Banking Relationshipmentioning

confidence: 99%

“…This method is used by several authors (Blackwell and Winters, 1997;Charlier, 1998;Harhoff and Körting, 1998;Athavale and Edmister, 1999;Auria et al, 1999) that conclude that a greater concentration of credit with the lender is associated with lower cost of credit, greater access to credit or even more granting credit.…”

Section: Length Of the Banking Relationshipmentioning

confidence: 99%

“…The length of the banking relationship is a frequently used variable in various empirical studies (Petersen and Rajan, 1994;Berger and Udell, 1995;Blackwell and Winters, 1997;Cowling, 1999;Cardone et al, 2005;Hernández-Cánovas and Martínez-Solano, 2006;Brick et al, 2007) as an indicator of the stability of the banking relationship. This study measures the length of the banking relationship (LBR) by the number of years of relationship with the lending bank, since becoming a customer, in classes.…”

Section: Banking Relationshipmentioning

confidence: 99%

“…The degree of borrowing concentration variable (DBC) with the lending bank used in this study is a substitute of the number of lending banks used by the borrowing firm, which can also transmit an approximate picture of the stability of the banking relationship. This variable was used in several studies (Blackwell and Winters, 1997;Auria et al, 1999;Ewert and Schenk, 1998;Ziane, 2003).…”

Section: Banking Relationshipmentioning

confidence: 99%

“…Several studies (Riding et al, 1994;Blackwell and Winters, 1997;Johnson, 1998;Athavale and Edmister, 1999) show that repeated transactions over time between banks and SME contribute to reduce information asymmetry between the parties, diminishing the bank's need to control SME activity and, consequently, it becomes possible for them to obtain an overall improvement in credit terms. Portugal has a bank-based financial system with an undeveloped stock market in comparison with stock markets of USA and other European countries.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

Banking relationship and credit terms: empirical evidence from Portuguese small firms

Matias¹,

Serrasqueiro²,

Costa³

2010

AJSMS

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Based on a sample of Micro and Small-sized Enterprises (MSE) financed by a large Portuguese bank, this study seeks to assess the importance of the banking relationship for MSE to obtain better credit terms, i.e. higher credit limit, lower risk premium and less probability that collateral must be provided. We conclude that long term banking relationship alone is not important for firms to obtain better bank credit terms. However, greater borrowing concentration allows MSE to obtain a lower risk premium and a higher limit of credit. The magnitude of these impacts are affected by some specificities related to firm size, economic-financial performance and the position of the lending bank in the local banking market.

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Section: Length Of the Banking Relationshipmentioning

confidence: 99%

Section: Length Of the Banking Relationshipmentioning

confidence: 99%

Section: Banking Relationshipmentioning

confidence: 99%

Section: Banking Relationshipmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Banking relationship and credit terms: empirical evidence from Portuguese small firms

Matias¹,

Serrasqueiro²,

Costa³

2010

AJSMS

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Independent Directors, Business Risk, and the Informativeness of Accounting Earnings for Debt Contracting

Chu

Mbagwu

2018

Can J Adm Sci

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Using a sample of new bank loans, we investigate the impact of business risk on the usefulness of operating income after controlling for the proportion of independent directors. Consistent with the literature, our initial analyses reveal that the presence of independent directors on a board reduces the interest rate directly and indirectly through an increase in the usefulness of operating income. However, we further provide evidence that the indirect benefit of a high proportion of independent directors is reduced when we account for the presence of business risk. This suggests that studies examining the usefulness of operating income should take into account the effect of business risk. Résumé À partir d'un échantillon de nouveaux prêts bancaires, nous examinons l'incidence du risque d'entreprise sur l'utilité du résultat d'exploitation après avoir tenu compte de la proportion d'administrateurs indépendants. Les résultats de nos premières analyses qui se situent dans le prolongement des travaux antérieurs révèlent que la présence d'administrateurs indépendants au sein du conseil d'administration réduit directement et indirectement le taux d'intérêt par une augmentation de l'utilité du résultat d'exploitation. Toutefois, l'avantage indirect d'une forte proportion d'administrateurs indépendants est réduitlorsqu'on tient compte de la présence d'un risque commercial. Cette découverte nous amène à proposer que dans les études portant sur l'utilité du résultat d'exploitation, on tienne compte de l'effet du risque commercial.

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Overcoming Information Asymmetries in Low‐Income Lending: Lessons from the “Working Wheels” Program

Holmes

Isham

Wasilewski

2005

Southern Economic Journal

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Without access to transportation, the welfare‐to‐work transition is nearly impossible, yet little is known about the effectiveness of programs designed to improve credit access. Since 1998, Vermont's TANF funds have provided automobile loans through the “Working Wheels” program. We use microlevel data from this program to explore how to cost‐effectively provide loans to clients who cannot obtain affordable loans elsewhere. Our results verify the importance of relationship lending, particularly among those without documented credit histories. In the presence of information asymmetries about credit history, our results justify the increased trust placed in clients with whom the bank has a stronger relationship; such clients, ceteris paribus, are less likely to default. We conclude that in the current climate of welfare reform, policymakers should consider programs that encourage welfare recipients to establish and maintain relationships with financial institutions in order to facilitate access to credit and minimize the risk of default.

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Banking Relationships and the Effect of Monitoring on Loan Pricing

Cited by 196 publications

References 10 publications

Banking relationship and credit terms: empirical evidence from Portuguese small firms

Banking relationship and credit terms: empirical evidence from Portuguese small firms

Independent Directors, Business Risk, and the Informativeness of Accounting Earnings for Debt Contracting

Overcoming Information Asymmetries in Low‐Income Lending: Lessons from the “Working Wheels” Program

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