Relationship lending in a financial turmoil
AbstractWe investigate whether the shape of relations between banks and firms has had a detectable effect in mitigating the credit contraction that followed Lehman's default in September 2008. Using micro data on a large sample of Italian firms, we analyze the relation between firms' debt concentration and credit availability. We show that firms borrowing from a higher number of banks suffered on average a larger contraction in bank credit and a higher probability of experiencing a reduction in outstanding bank debt. The same results hold for firms diversifying their borrowing, concentrating a smaller proportion with the main bank. The stability of the bank-firm relationship, measured by its duration, also appears to have been of some value in mitigating the credit restriction. Our results also suggest the existence of a different regime in credit supply towards firms experiencing a reduction in outstanding bank debt. If there is a contraction in credit, the decrease is limited if relations are more intense i.e. a lower number of financial institutions from which the firm borrows, more concentrated lending and relations of greater duration. The opposite is true for firms with positive credit growth.
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Bibliographic InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 772.
Date of creation: Sep 2010
Date of revision:
relationship lending; financial crisis;
Other versions of this item:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
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