Competition between arm’s length and relational lenders: Who wins the contest?

Alejandro Drexler, Andre Guettler and Ahmet Ali Taskin

Journal of International Money and Finance, 2023, vol. 137, issue C

Abstract: Using geo-coded data with the location of bank branches and borrowers, we study the effect of bank competition on lending. The impact of competition depends on the incumbent’s and the entrant’s lending technologies. The addition of a relational lenders’ branch increases the probability of exit of and reduces the size of loans issued by all types of incumbents, while the opening of a branch by an arm’s length lender only affects the probability of exit from arm’s length incumbents. We believe relational lenders can compete more effectively by extracting and using private information unavailable to arm’s length entrants.

Keywords: Banking; Lending technology; Spatial competition (search for similar items in EconPapers)
JEL-codes: D82 E50 G21 R51 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:137:y:2023:i:c:s0261560623000980

DOI: 10.1016/j.jimonfin.2023.102897

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