Relationship Banking: The Borrower's Incentives Channel

Pejman Abedifar, Soroush Kamyab, Steven Ongena and Amine Tarazi
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Pejman Abedifar: University of St Andrews - School of Management; Khatam University - Tehran Institute for Advanced Studies; Khatam University
Soroush Kamyab: Khatam University

No 24-85, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We contribute to the relationship banking literature by uncovering the impact of a prior banking relationship on borrower's incentives to avoid default. As an identification strategy we exploit a proprietary dataset comprising 149,230 mortgage loans tracked monthly over a two-year period in a unique institutional setting that allows us to isolate the influence of borrower's incentives. Our findings indicate that a pre-existing relationship diminishes borrower's default risk by approximately 4%, exclusively attributable to the value of the relationship for the borrowers. This effect persists even during the notable surge in loan defaults during the COVID-19 pandemic. Our results also show that the impact of pre-existing banking relationships on avoiding default is stronger for wealthier, more religious, and male borrowers.

Keywords: Relationship Banking; Borrower's Incentives; Mortgage Loan; COVID-19; Default Risk (search for similar items in EconPapers)
JEL-codes: G20 G21 (search for similar items in EconPapers)
Pages: 87 pages
Date: 2024-11
New Economics Papers: this item is included in nep-ure
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https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5034386 (application/pdf)

Related works:
Working Paper: Relationship Banking: The Borrower's Incentives Channel (2025)
Working Paper: Relationship Banking: The Borrower's Incentives Channel (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2485

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