Relationship Banking: The Borrower's Incentives Channel

Pejman Abedifar, Soroush Kamyab (), Steven Ongena and Amine Tarazi
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Pejman Abedifar: Tehran Institute for Advanced Studies, Khatam University, Tehran, Iran
Soroush Kamyab: Tehran Institute for Advanced Studies, Khatam University, Tehran, Iran

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Abstract: We contribute to the relationship banking literature by uncovering the impact of a prior banking relationship on borrower's incentives to avoid default. As an identification strategy we exploit a proprietary dataset comprising 149,230 mortgage loans tracked monthly over a two-year period in a unique institutional setting that allows us to isolate the influence of borrower's incentives. Our findings indicate that a pre-existing relationship diminishes borrower's default risk by approximately 4%, exclusively attributable to the value of the relationship for the borrowers. This effect persists even during the notable surge in loan defaults during the COVID-19 pandemic. Our results also show that the impact of preexisting banking relationships on avoiding default is stronger for wealthier, more religious, and male borrowers.

Keywords: Relationship Banking Borrower's Incentives Mortgage Loan COVID-19 Default Risk. JEL Classification: G20 G21; Relationship Banking; Borrower's Incentives; Mortgage Loan; COVID-19 (search for similar items in EconPapers)
Date: 2024-11-20
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Related works:
Working Paper: Relationship Banking: The Borrower's Incentives Channel (2025)
Working Paper: Relationship Banking: The Borrower's Incentives Channel (2024)
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