‘Relationship Banking and SMEs: A Theoretical Analysis’
AbstractReliable information on small- and medium-sized enterprises (SMEs) is rare and costly for financial intermediaries. Therefore relationship banking is often considered as the appropriate lending technique. In this paper we offer a theoretical model to analyze relationship banking and the pricing behavior of banks in a Bertrand competition framework with monitoring costs. We show that the lack of reliable information leads to comparable high interest rates even if a long-term relationship between borrower and bank exists. The paper offers a theoretical explanation why SMEs often are faced with borrowing constraints. Copyright Springer 2006
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Bibliographic InfoArticle provided by Springer in its journal Small Business Economics.
Volume (Year): 27 (2006)
Issue (Month): 2 (October)
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Web page: http://www.springerlink.com/link.asp?id=100338
accounting; financial constraints; relationship banking; small and medium sized enterprises; D43; D82; G21; M41;
Other versions of this item:
- Timo Baas & Mechthild Schrooten, 2005. "Relationship Banking and SMEs: A Theoretical Analysis," Discussion Papers of DIW Berlin 469, DIW Berlin, German Institute for Economic Research.
- Baas, Timo & Schrooten, Mechthild, 2005. "Relationship banking and SMEs: a theoretical analysis," Discussion Paper Series a470, Institute of Economic Research, Hitotsubashi University.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
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