The impact of capital market competition on relationship banking: Evidence from the Japanese experience

Donald R. Fraser, S. Ghon Rhee and Hwan Shin

Journal of Empirical Finance, 2012, vol. 19, issue 4, 411-426

Abstract: Disagreement exists about the potential effects of changes in competition on relationship lending. Boot and Thakor (2000) predict that an increase in capital market competition should lead to a reduction in relationship lending; however, Dinç (2000) predicts that greater capital market competition should increase relationship lending. Thus far, data limitations have precluded empirical tests of these competing hypotheses. In this study, we use a unique data set drawn from the deregulation of the Japanese financial system. Our findings show that increased capital market competition is associated with reduced relationship lending. However, the effect differs according to the maturity of the loans; increased capital market competition is associated with reduced long-term, but greater short-term, relationship lending.

Keywords: Relationship banking; Transaction banking; Arm's length lending; Competition; Japanese banking (search for similar items in EconPapers)
JEL-codes: G20 G21 G28 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:19:y:2012:i:4:p:411-426

DOI: 10.1016/j.jempfin.2012.04.007

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