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Interorganizational trust and agency costs in credit relationships between savings banks and SMEs

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  • Hirsch, Bernhard
  • Nitzl, Christian
  • Schoen, Matthias

Abstract

We analyze the impact of trust on agency costs in relationships between savings banks and SMEs as well as the mediating effects of hard information on interorganizational trust between these two actors. We tested six hypotheses using a structural equation model based on partial least squares. Study data were obtained from two German savings banks and dyadic questionnaires of relationship managers and credit risk officers. Our results provide evidence that interorganizational trust reduces agency costs by directly and indirectly increasing the quality of credit negotiations by lowering the bank's monitoring intensity via habitualization. Surprisingly, institutionalized trust increases the banks’ monitoring intensity.

Suggested Citation

  • Hirsch, Bernhard & Nitzl, Christian & Schoen, Matthias, 2018. "Interorganizational trust and agency costs in credit relationships between savings banks and SMEs," Journal of Banking & Finance, Elsevier, vol. 97(C), pages 37-50.
    • Handle: RePEc:eee:jbfina:v:97:y:2018:i:c:p:37-50
    DOI: 10.1016/j.jbankfin.2018.09.017
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    Cited by:

    1. Pranith Kumar Roy & Krishnendu Shaw & Alessio Ishizaka, 2023. "Developing an integrated fuzzy credit rating system for SMEs using fuzzy-BWM and fuzzy-TOPSIS-Sort-C," Annals of Operations Research, Springer, vol. 325(2), pages 1197-1229, June.
    2. Francesco Ciampi & Alessandro Giannozzi & Giacomo Marzi & Edward I. Altman, 2021. "Rethinking SME default prediction: a systematic literature review and future perspectives," Scientometrics, Springer;Akadémiai Kiadó, vol. 126(3), pages 2141-2188, March.
    3. Jin, Ming & Yin, Mingmei & Chen, Zhongfei, 2021. "Do investors prefer borrowers from high level of trust cities? Evidence from China’s P2P market," Research in International Business and Finance, Elsevier, vol. 58(C).
    4. Seiler, Volker & Fanenbruck, Katharina Maria, 2021. "Acceptance of digital investment solutions: The case of robo advisory in Germany," Research in International Business and Finance, Elsevier, vol. 58(C).
    5. Peng Liu & Daxin Dong, 2020. "Impact of Economic Policy Uncertainty on Trade Credit Provision: The Role of Social Trust," Sustainability, MDPI, vol. 12(4), pages 1-24, February.
    6. Pranith Kumar Roy & Krishnendu Shaw, 2021. "A multicriteria credit scoring model for SMEs using hybrid BWM and TOPSIS," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-27, December.
    7. repec:ctc:sdimse:dime19_01 is not listed on IDEAS
    8. Liu, Chen & Yang, Wei, 2023. "Does social insurance stimulate business creation? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    9. Jin, Ming & Liu, Jinshan & Chen, Zhongfei, 2022. "Impacts of social trust on corporate leverage: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 505-521.

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    More about this item

    Keywords

    Trust; Agency costs; Debt finance; Bank-borrower-relationships; SME; Partial least squares path modeling;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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