The duration of bank relationships

Ongena, Steven; Smith, David C.

doi:10.1016/s0304-405x(01)00069-1

Cited by 400 publications

(271 citation statements)

References 31 publications

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“…On the one hand, some papers have found evidence consistent with the market power hypothesis that competition enhances access to credit (e.g., Jayaratne and Wolken, 1999;Boot and Thakor, 2000;Ongena and Smith, 2001, and Scott and Dunkelberg 2005, Elsas 2005). …”

Section: Introductionmentioning

confidence: 86%

Bank Market Power and SME Financing Constraints

2006

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Theoretical models of lending and industrial organization theory predict that firm access to credit depends critically on bank market structure. However, empirical studies offer mixed results. Some studies find that higher concentration is associated with higher credit availability consistent with the information hypothesis that less competitive banks have more incentive to invest in soft information. Other empirical studies, however, find support for the market power hypothesis that credit rationing is higher in less competitive bank markets. This study tests these two competing hypotheses by employing for the first time a competition indicator from the Industrial Organization literature -the Lerner index -as an alternative to traditional measures of concentration. We test the information and the market power hypotheses using alternative measures and firm borrowing constraints. We find that the results are sensitive to the choice between IO margins and traditional concentration measures. In particular, the HHI seems to support the information hypothesis while the Lerner index supports the market power hypothesis. The Lerner index, however, is found to be a more consistent indicator of market power across different measures of financing constraints. Moreover, the Lerner index is found to exhibit the larger marginal effect on the probability that a firm is financially constrained among a large set of firm level, bank market and environmental control variables. Our results are robust to alternative measures of financial constraints and cast doubt on the validity of relying on concentration measures as proxies of competition in corporate lending relationships (247 words).

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Section: Introductionmentioning

confidence: 86%

Bank Market Power and SME Financing Constraints

2006

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“…Research has mostly focused on either the relationship between firms and banks (e.g. Ongena and Smith 2001;Ioannidou and Ongena 2010) or on consumers and non-banks (e.g. Giulietti et al 2005;Yang 2014).…”

Section: Introductionmentioning

confidence: 99%

Banking Products: You Can Take Them with You, So Why Don’t You?

Cruijsen

Diepstraten

2017

J Financ Serv Res

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Policymakers around the world call for more competition in the banking sector. One prerequisite to achieving this is customer mobility. Despite its policy relevance, surprisingly little is known about consumers' bank switching behaviour. We show that the principal reasons to stay at one's bank are a good bank-customer relationship, practical barriers, and the perception that there is not much benefit in switching. Moreover, we find that the reported propensity to switch varies across banking products. For the main current and savings accounts, this propensity is most strongly related to the bank-customer relationship, while for mortgage loans it is especially linked to switching experience. These findings have important implications for antitrust policy; they provide an argument against using a cluster-based legal standard for the analysis of competition and in favour of a disaggregated approach. Regarding the effectiveness of hypothetical policy initiatives to lower switching barriers, we find that the reported switching propensity with current accounts is higher in the case of account number portability, while more knowledge of the existing switching service has no significant effect. Lastly, scenario analysis shows that a policy of allowing new foreign banks to enter the savings market is less promising for enhancing mobility than a policy that increases the number of domestic players.

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“…A proxy for relational lending widely used in the literature is the span of time since when the firm and its main bank were tied, the basic idea being that the longer the relationship, the greater the availability of proprietary soft information and the specific resources invested by the parties in the relationship, and the more difficult it is for the bank and the firm to escape from the relationship (Petersen and Rajan 1994, Berger and Udell 1995, Degryse and Van Cayseele 2000, Ongena and Smith 2001, Elsas 2005). …”

Section: The Length Of the Bank Relationshipmentioning

confidence: 99%

Long-lasting bank relationships and growth of firms

Gambini

Zazzaro

2011

Small Bus Econ

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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. Long-Lasting Bank Relationships and Growth of Firms Abstract A puzzling but consistent result in the empirical literature on banking is that firms with close bank ties do not grow faster than bank-independent firms. In this paper, we reconsider the link between relationship lending and firms' growth, distinguishing firms by size and "health". The idea is that the beneficial effects of relationship lending on information asymmetries can be compensated by other negative capture, risk and externality effects which make relational banks reluctant to support long-term growth projects of client firms, and that the strength of these compensating effects varies with firm size and health status. We explore the influence of long-lasting bank relationships on employment and asset growth of a large sample of Italian firms. The main finding is that relationship lending hampers the efforts of small firms to increase their size, while it mitigates the negative growth of troubled, medium-large enterprises. Terms of use: Documents inJEL-Code: G21, G34.Keywords: relationship lending, capture effects, firms' growth. We wish to thank Piero Alessandrini, Carlo Altavilla, Marco Lilla, Jack Lucchetti, Lars Norden, Andrea Presbitero, Franco Spinelli, Carmine Trecroci and Timo Wollmershäuser for comments and suggestions. Our thanks also go to seminar participants at the University of Brescia, University of Naples 'Parthenope', University of Milan and at the MoFiR conference on The changing geography of money, banking and finance in a post-crisis world (Ancona, Italy) and the Cesifo-Delphi conference on Financial markets, corporate governance and macroeconomic outcomes (Munich, Germany). Usual disclaimer applies. Alessandro Gambini 2

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The duration of bank relationships

Cited by 400 publications

References 31 publications

Bank Market Power and SME Financing Constraints

Bank Market Power and SME Financing Constraints

Banking Products: You Can Take Them with You, So Why Don’t You?

Long-lasting bank relationships and growth of firms

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