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Firm Failure and Relationship Lending:New Evidence from Small Businesses

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  • José Eduardo Gómez-González

    ()

  • 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.

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 638.

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Handle: RePEc:bdr:borrec:638

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Keywords: Firms; bank relationships; survival analysis. Classification JEL: G20; G21; C40.;

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  1. von Thadden, Ernst-Ludwig, 2004. "Asymmetric information, bank lending and implicit contracts: the winner's curse," Finance Research Letters, Elsevier, Elsevier, vol. 1(1), pages 11-23, March.
  2. Gómez-González, José Eduardo & Reyes, Nidia Ruth, 2011. "The number of banking relationships and the business cycle: New evidence from Colombia," Economic Systems, Elsevier, Elsevier, vol. 35(3), pages 408-418, September.
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