Information verifiability, bank organization, bank competition and bank-borrower relationships

Masaji Kano, Hirofumi Uchida, Gregory F. Udell, Wako Watanabe

Research output: Contribution to journalArticlepeer-review

46 Citations (Scopus)


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.

Original languageEnglish
Pages (from-to)935-954
Number of pages20
JournalJournal of Banking and Finance
Issue number4
Publication statusPublished - 2011 Apr


  • Bank-borrower relationships
  • Banks
  • Credit availability
  • Loan interest rate
  • Small business

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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