Does relationship lending matter in an emerging market?

Naël Shehadeh, Faicel Belaid, Gilles Dufrénot and Christelle Lecourt

Applied Economics, 2024, vol. 56, issue 50, 6171-6187

Abstract: Based on a unique database (data on 2529 bank-firm relationships of 403 firms from 2012 to 2018) provided by the Central Bank of Tunisia, this article analyses the impact of the intensity and duration of bank-firm relationship on loan quality. By estimating a panel ordered probit model, the results show that the intensity of the lending relationship has a positive (negative) impact on high (medium or low) quality loans. In addition, the duration of the bank-firm relationship increases the probability of low-quality loans. We also find that the impact of relationship lending on loan quality differs according to the level of profitability of the firm. Low and non-performing firms tend to have longer and closer bank relationship, whereas it is the opposite for performing firms. Our results suggest that in an emerging market concentrated around a few banks, longer and closer banking relationships are mainly in favour of low and non-performing firms, reflecting adverse selection and strong moral hazard.

Date: 2024
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DOI: 10.1080/00036846.2023.2269629

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