When arm's length Is too far. Relationship banking over the credit cycle

Thorsten Beck, Hans Degryse, Ralph De Haas and Neeltje Van Horen ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Using a novel way to identify relationship and transaction banks, we study how banks' lending techniques affect credit constraints of small and medium-sized enterprises across emerging Europe. 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 credit 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 a downturn is strongest for smaller and more opaque firms and in regions where the downturn is more severe. Additional evidence suggests that the reduction in credit constraints due to relationship lending helps to mitigate the adverse impact of an economic downturn on local firm growth and does not constitute evergreening of underperforming loans.

Keywords: relationship bankig; credit constraints; credit cycle (search for similar items in EconPapers)
JEL-codes: F36 G21 O12 O16 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2015-03-20
New Economics Papers: this item is included in nep-bec, nep-ent and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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http://eprints.lse.ac.uk/62005/ Open access version. (application/pdf)

Related works:
Journal Article: When arm's length is too far: Relationship banking over the credit cycle (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:62005

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