Lines of Credit and Relationship Lending in Small Firm Finance

Allen N. Berger () and Gregory Udell ()

Macroeconomics from EconWPA

Abstract: This paper examines the role of relationship lending using a data set on small firm finance. We specifically examine price and nonprice terms of commercial bank lines of credit (L/C) extended to small firms. Our focus on bank L/Cs allows us to examine a type of loan contract where the bank-borrower relationship is likely to be an important mechanism for solving asymmetric information problems associated with financing small enterprises. We find that borrowers with longer banking relationships tend to pay lower interest rates and are less likely to pledge collateral. These results are consistent with theoretical arguments that relationship lending generates valuable information about borrower quality.

JEL-codes: E (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin, nep-mon and nep-pke
Date: 1999-06-15
Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 39; figures: included
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http://129.3.20.41/eps/mac/papers/9906/9906006.pdf (application/pdf)

Related works:
Working Paper: Lines of Credit and Relationship Lending in Small Firm Finance (1994)
Journal Article: Lines of credit and relationship lending in small firm finance (1994)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpma:9906006

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