TY - JOUR
T1 - Information verifiability, bank organization, bank competition and bank-borrower relationships
AU - Kano, Masaji
AU - Uchida, Hirofumi
AU - Udell, Gregory F.
AU - Watanabe, Wako
N1 - Funding Information:
This study was conducted as one of the projects of the Regional Finance Workshop of the Research Institute of Economy, Trade, and Industry (RIETI). The authors would like to thank RIETI for data provision and financial support, and Shuichi Uemura for administrative help and useful comments. An anonymous referee gave us many valuable comments which significantly contributed to the improvement of the paper. The authors are also grateful to Shin-ichi Hirota, Munehisa Kasuya, Yoshiro Tsutsui, Nobuyoshi Yamori, the members of the Regional Finance Workshop, Tadanobu Nemoto, Jun Ma, Tetsushi Homma, Toshiyuki Soma, Keiichi Hori, Yuichi Fukuta, and Akihisa Shibata for their comments and supports. An earlier version of this paper has been presented at Waseda University, Toyama University, the Macroeconomics Workshop, and the 2006 Spring meeting of the Japanese Economic Association and RIETI. The second author thanks the Grant-in-Aid for Scientific Research (B) ( Japan Society for the Promotion of Science , No. 21330076 ) and the fourth author thanks the Grant-in-Aid for Young Scientists (B) (Japan Society for the Promotion of Science, No. 18730207 ) for a financial support.
PY - 2011/4
Y1 - 2011/4
N2 - This paper investigates whether the benefits of bank-borrower relationships differ depending on three factors identified in the theoretical literature: verifiability of information, bank size and complexity, and bank competition. We extend the current literature by analyzing how relationship lending affects loan contract terms and credit availability in an empirical model that simultaneously accounts for all three of these factors. Based on Japanese survey data we find evidence that the benefits from stronger bank-borrower relationships in terms of credit availability are limited to smaller banks. However, when the benefits are measured as improved credit terms, we find little additional benefit, and in some cases increased cost, from stronger relationships for opaque borrowers and for borrowers who get funding from small banks. These latter findings suggest the possibility that relationship borrowers may suffer from capture effects.
AB - This paper investigates whether the benefits of bank-borrower relationships differ depending on three factors identified in the theoretical literature: verifiability of information, bank size and complexity, and bank competition. We extend the current literature by analyzing how relationship lending affects loan contract terms and credit availability in an empirical model that simultaneously accounts for all three of these factors. Based on Japanese survey data we find evidence that the benefits from stronger bank-borrower relationships in terms of credit availability are limited to smaller banks. However, when the benefits are measured as improved credit terms, we find little additional benefit, and in some cases increased cost, from stronger relationships for opaque borrowers and for borrowers who get funding from small banks. These latter findings suggest the possibility that relationship borrowers may suffer from capture effects.
KW - Bank-borrower relationships
KW - Banks
KW - Credit availability
KW - Loan interest rate
KW - Small business
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U2 - 10.1016/j.jbankfin.2010.09.010
DO - 10.1016/j.jbankfin.2010.09.010
M3 - Article
AN - SCOPUS:79951550176
SN - 0378-4266
VL - 35
SP - 935
EP - 954
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
IS - 4
ER -