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Firm failure and relationship lending in an emerging economy: new evidence from small businesses

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  • Jose Eduardo Gomez-Gonzalez
  • Nidia Ruth Reyes

Abstract

We study the effect of relationship lending on small firms' failure probability using a uniquely rich data set comprised of information on individual loans of a large number of small firms in Colombia. We control for firm-specific variables and find that small firms involved in long-term liaisons with commercial banks have a significantly lower probability of becoming bankrupt than otherwise identical firms not involved in a long-term credit relationship. We also find that small firms with multiple banking relationships face a lower failure hazard than otherwise identical firms involved in a unique long-term relationship.

Suggested Citation

  • Jose Eduardo Gomez-Gonzalez & Nidia Ruth Reyes, 2013. "Firm failure and relationship lending in an emerging economy: new evidence from small businesses," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 6(1), pages 131-145, March.
    • Handle: RePEc:taf:macfem:v:6:y:2013:i:1:p:131-145
    DOI: 10.1080/17520843.2012.691890
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