Relationship lending in a financial turmoil

Stefania De Mitri (), Giorgio Gobbi and Enrico Sette
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Stefania De Mitri: Bank of Italy

No 772, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We investigate whether the shape of relations between banks and firms has had a detectable effect in mitigating the credit contraction that followed Lehman's default in September 2008. Using micro data on a large sample of Italian firms, we analyze the relation between firms' debt concentration and credit availability. We show that firms borrowing from a higher number of banks suffered on average a larger contraction in bank credit and a higher probability of experiencing a reduction in outstanding bank debt. The same results hold for firms diversifying their borrowing, concentrating a smaller proportion with the main bank. The stability of the bank-firm relationship, measured by its duration, also appears to have been of some value in mitigating the credit restriction. Our results also suggest the existence of a different regime in credit supply towards firms experiencing a reduction in outstanding bank debt. If there is a contraction in credit, the decrease is limited if relations are more intense i.e. a lower number of financial institutions from which the firm borrows, more concentrated lending and relations of greater duration. The opposite is true for firms with positive credit growth.

Keywords: relationship lending; financial crisis (search for similar items in EconPapers)
JEL-codes: G21 G30 (search for similar items in EconPapers)
Date: 2010-09
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Citations: View citations in EconPapers (40)

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Working Paper: Relationship lending in a financial turmoil (2012)
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