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Lending Relationships and the Collateral Channel

Gareth Anderson (), Saleem Bahaj (), Matthieu Chavaz (), Angus Foulis () and Gabor Pinter
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Gareth Anderson: Centre for Macroeconomics (CFM)

No 1813, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: This paper shows that lending relationships insulate corporate investment from shocks to collateral values. We construct a novel database covering the banking relationships of UK firms, as well as those of their board members and executives. We find that the sensitivity of corporate investment to shocks to real estate collateral value is halved when the length of the bank-firm relationship increases from the 25th to the 75th percentile. This effect is substantially reduced for firms whose executives have a personal mortgage relationship with their firm’s bank. Our findings provide support for theories where collateral and private information are substitutes in mitigating credit frictions over the cycle.

New Economics Papers: this item is included in nep-ban, nep-bec and nep-eur
Date: 2018-05
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Working Paper: Lending relationships and the collateral channel (2018) Downloads
Working Paper: Lending relationships and the collateral channel (2018) Downloads
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