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Bank relationships: effect on the availability and marginal cost of credit for firms in Argentina

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Author Info
Jorge M.Streb
Javier Bolzico
Pablo Druck
Alejandro Henke
José Rutman
Walter Sosa Escudero

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Abstract

The paper provides evidence on what affects at the margin the cost and availability of bank credit for firms in Argentina. We study in particular how banks use different pieces of private and public information to screen firms and overcome informational asymmetries in the credit market. Some private information is transferable, like balance sheet data. Private information generated in relationships is not. To capture the closeness of bank relationships, we resort to the concentration of bank credit and the number of credit lines in a bank. We also consider public information available in the Central de Deudores. The cost of credit is measured using overdrafts, the most expensive line of credit, at the bank that charges the highest rate for overdrafts. We find that the cost of credit is smaller for a firm with a close relationship to the marginal bank. Firms with large assets, a high sales/assets ratio, and a low debt/assets ratio pay a lower interest rate at the margin. A good credit history (no debt arrears and no bounced checks) and collateral also reduce the marginal interest rate. The availability of credit is measured by unused credit lines as a proportion of total liabilities with the main bank. The availability of credit depends positively on a close relationship with the main bank. Large assets, a high return over assets, a high sales/assets ratio, a low debt/assets ratio, a good credit history, and collateral lead to higher credit availability. Our measure of unused credit lines is less ambiguous than traditional measures like leverage, which may indicate financial distress rather than availability of credit.

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Paper provided by Universidad del CEMA in its series CEMA Working Papers: Serie Documentos de Trabajo. with number 216.

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Date of creation: May 2002
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Handle: RePEc:cem:doctra:216

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G20 - Financial Economics - - Financial Institutions and Services - - - General

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References listed on IDEAS
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    Other versions:
  5. Schiantarelli, Fabio, 1996. "Financial Constraints and Investment: Methodological Issues and International Evidence," Oxford Review of Economic Policy, Oxford University Press, vol. 12(2), pages 70-89, Summer.
  6. Sharpe, Steven A, 1990. " Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships," Journal of Finance, American Finance Association, vol. 45(4), pages 1069-87, September. [Downloadable!] (restricted)
    Other versions:
  7. Arturo Galindo & Fabio Schiantarelli & Andrew Weiss, 2001. "Does Financial Liberalization Improve the Allocation of Investment? Micro Evidence from Developing Countries," Boston College Working Papers in Economics 503, Boston College Department of Economics, revised 29 Oct 2003. [Downloadable!]
    Other versions:
  8. Mayer, Colin, 1994. "The Assessment: Money and Banking: Theory and Evidence," Oxford Review of Economic Policy, Oxford University Press, vol. 10(4), pages 1-13, Winter.
  9. Claessens, Stijn & Demirguc-Kunt, Asl[iota] & Huizinga, Harry, 2001. "How does foreign entry affect domestic banking markets?," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 891-911, May. [Downloadable!] (restricted)
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  13. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March. [Downloadable!] (restricted)
  14. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
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  16. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1990. "The role of banks in reducing the costs of financial distress in Japan," Journal of Financial Economics, Elsevier, vol. 27(1), pages 67-88, September. [Downloadable!] (restricted)
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  17. Franklin Allen, 2001. "Do Financial Institutions Matter?," Center for Financial Institutions Working Papers 01-04, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  18. William H. Greene, 1992. "A Statistical Model for Credit Scoring," Working Papers 92-29, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Arturo Galindo & Fabio Schiantarelli, 2002. "Credit Constraints in Latin America: An Overview of the Micro Evidence," Boston College Working Papers in Economics 537, Boston College Department of Economics. [Downloadable!]
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