Bank–firm relationship and loan maturity: Evidence from Japanese SMEs

Islam Kachkach and Hirofumi Uchida

Journal of the Japanese and International Economies, 2022, vol. 66, issue C

Abstract: We use unique data on Japanese SMEs to investigate how the bank-firm relationship affects the loan maturity of SMEs in Japan. We apply Diamond's (1991) model on the firms’ choice of long- versus short-term debt to the context of SME lending and test a prediction in a manner faithful to the applied model. We find that the ratio of long-term loans decreases with the strength of bank-firm relationships as measured by their duration. This finding is consistent with the prediction and suggest that SMEs take into account the benefit of information production by banks and the cost of liquidation when determining the loan maturity.

Keywords: Loan maturity; Small businesses; Relationship lending; Information asymmetry (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:66:y:2022:i:c:s0889158322000387

DOI: 10.1016/j.jjie.2022.101229

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