First Time Lucky? An Experiment on Single versus Multiple Bank Lending Relationships

Giorgia Barboni and Tania Treibich

No 2013-28, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

Abstract: The widespread evidence of multiple bank lending relationships in credit markets suggests that firms are interested in setting up a diversity of banking links. However, it is hard to know from the empirical data whether a firm's observed number of lenders is symptomatic of financial constraints or rather a well-designed strategy. We design an experimental credit market to analyze the determinants of multiple bank lending relationships, both from the demand and the supply side. Our results show that borrowers prefer multiple lending when they are credit rationed and unable to stabilize their lending source, whatever their risk level. Moreover, rationed borrowers are less likely to repay and display a higher tendency to switch between lenders. At the same time, we observe that the determinants of lending change according to the type of information available on the loan applicants. Overall, our findings support the view that the number of banking relationships is mainly determined by the supply side.

Keywords: Repeated games; experiment; information asymmetries; multiple lending; relationship lending (search for similar items in EconPapers)
JEL-codes: C72 C73 C92 G21 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2013-09
New Economics Papers: this item is included in nep-ban, nep-exp and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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