The Effect of Relationship Lending on Frim Performance

Judit Montoriol Garriga (montoriol@gmail.com)

No 605, Working Papers from Departament Empresa, Universitat Autònoma de Barcelona

Abstract: We examine how relationship lending affects firm performance using a panel dataset of about 70,000 small and medium Spanish firms in the period 1993-2004. We model firm performance jointly with the firm's choice of the number of bank relationships. Controlling for firm fixed effects and using instrumental variables for the decision on the number of bank relationships, we find that firms maintaining exclusive bank relationships have lower profitability. The result is consistent with the view that banks appropriate most of the value generated through close relationships with its borrowers as long as they do not face competition from other lenders.

Pages: 36 pages
Date: 2006-06, Revised 2006-06
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Citations: View citations in EconPapers (3)

Published in Working Papers at the Department of Business, June 2006 pages 1-36

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