Competition and relationship lending: Friends or foes?

Presbitero, Andrea F.; Zazzaro, Alberto

doi:10.1016/j.jfi.2010.09.001

Cited by 128 publications

(50 citation statements)

References 78 publications

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“…A difference-in-difference estimation shows that firms located closer to the Austrian border are more likely to perceive bank access to loans as accommodating as long as regulatory differences exist. This result is consistent with the research of Presbitero and Zazzaro (2011), who find that more competition (in our case, through regulatory differences) increases relationship lending in markets dominated by small local banks.…”

supporting

confidence: 93%

The effect of banking regulation on cross-border lending

Fidrmuc

Hainz

2013

Journal of Banking & Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Effect of Banking Regulation on Cross-Border Lending* Abstract Banking regulations often differ between countries. For instance, some regulators oblige banks to document their evaluation of firms' creditworthiness and thereby determine the banks' lending technology. We study in a theoretical model how differences in regulation influence competition between domestic and foreign banks and the effect of regulatory harmonization on cross-border lending. We predict that lending rates are lower and access to credit is easier for firms located in the border region if regulation differs. We confirm the model's predictions using unique bank-and firm-level data from Germany by employing a difference-in-difference estimation. Terms of use: Documents in EconStor mayJEL Classification: G21, G18, F23.

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supporting

confidence: 93%

The effect of banking regulation on cross-border lending

Fidrmuc

Hainz

2013

Journal of Banking & Finance

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“…Their results show that competition and close banking relationships are not necessarily hostile. Presbitero and Zazzaro [22] explain this non-monotonic relationship by the structure of the local credit market. They found that a marginal increase in interbank competition is crucial for relational financing in markets characterized by the presence of large banks and foreign banks.…”

Section: Interbank Competition and Benefits Of Relational Fundingmentioning

confidence: 99%

Information Reliability, Organizational Bank Structure, Interbank Competition and Relationship Lending Benefits

Loukil¹,

Ak²

2017

J Bus Fin Aff

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According to the current paradigm of relational financing, companies, having difficulty in transmitting information and are consequently constrained to finance on unfavourable conditions by banks with no access to public financial markets, benefit more from the establishment of a close financial relationship with their banks.Boot [12] defines relationship banking as the provision of financial services by financial intermediary that invests in obtaining customerspecific information, often proprietary in nature and evaluates the profitability of these investments through multiple interactions with the same customer over time and/or across products. The relational finance technology is a technology based on "soft" information produced by the banker through direct and repetitive contacts with the manager of the company. Since this information is difficult to quantify and transmit, relational finance seems ideal for SMEs characterized by a certain degree of informational opacity. Indeed, developing a close banking relationship between the bank and the company appears to be the only way to accumulate "soft" information whereas transactional finance technologies do not depend on close financial relationships. Rather, these technologies depend on "hard" information, that is, financial statements certified by a statutory auditor [10]. In this context, Taketa and Udell [14] classified financing technologies by type of information required "hard" or "soft" (Table 1).In the same way of Jianglini et al. [17] and Kano et al.[10], we will examine whether the effect of reducing the cost of credit by establishing a close financial relationship with the company varies depending on the quality of the information received. This leads us to test the following hypothesis:H1: Reducing cost of credit through close banking relationship is more important for companies with no "hard" information.Keywords: Banks; Small business; Bank-borrower relationships; Loan interest rate IntroductionAsymmetric information and effects on SMEs financing conditions is a research theme that has continued to see more and more interest. Indeed, firms with positive net present value investment opportunities may be deprived of investment because of adverse selection and moral hazard problem [1]. Among suggested solutions by theoretical and empirical literature, we distinguish the technology of relationship lending. Indeed, this type of financing depends on the accumulation of "soft" information over time by the banker. Despite relationship lending has been the subject of considerable recent research interest, the process of relationship lending is not well understood [2]. Understanding relational funding technology requires understanding the likely effect of certain factors. In fact, since the credit officer is responsible for producing this specific information, the agency problems created by the banking organization [2][3][4][5], the degree of banking competition [6][7][8][9] and the reliability of the information disclosed [10] could influence the benefits...

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“…HERFINDAHL is calculated based on the share of banks' branches within the prefecture in which a borrowing firm is located. BK_SHARE and HERFINDAHL may also be important for firm-bank relationships, although the existing empirical literature is ambiguous on whether market concentration (competition) is conducive or detrimental to relationship lending (Elsas, 2005;Ongena, 2007, Presbitero andZazzaro, 2011). …”

Section: Other Control Variablesmentioning

confidence: 99%

Differentiated use of small business credit scoring by relationship lenders and transactional lenders: Evidence from firm–bank matched data in Japan

Ono

Hasumi

Hirata

2014

Journal of Banking & Finance

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This paper examines the ex-post performance of small and medium-sized enterprises (SMEs) that obtained small business credit scoring (SBCS) loans. Using a unique Japanese firm-bank matched dataset, we identify whether an SME has obtained an SBCS loan and, if so, from which type of bank: a relationship lender or a transactional lender. We find that the ex-post probability of default after the SBCS loan was provided significantly increased for SMEs that obtained an SBCS loan from a transactional lender. We also find that the lending attitude of relationship lenders in the midst of the recent global financial crisis became much more severe if a transactional lender had extended an SBCS loan to a firm. These findings suggest that SBCS loans by a transactional lender are detrimental to a relationship lender's incentive to monitor SMEs and maintain relationships. In contrast, we do not find such detrimental effects for SBCS loans extended by a relationship lender.

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Competition and relationship lending: Friends or foes?

Cited by 128 publications

References 78 publications

The effect of banking regulation on cross-border lending

The effect of banking regulation on cross-border lending

Information Reliability, Organizational Bank Structure, Interbank Competition and Relationship Lending Benefits

Differentiated use of small business credit scoring by relationship lenders and transactional lenders: Evidence from firm–bank matched data in Japan

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