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The Impact of Competition on Bank Orientation

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  • Degryse, H.A.
  • Ongena, S.

    (Tilburg University, Center for Economic Research)

Abstract

How do banks react to increased competition?Recent banking theory offers conflicting predictions about the impact of competition on bank orientation - i.e., the choice of relationship based versus transactional banking.We empirically investigate the impact of interbank competition on bank branch orientation.We employ a unique data set containing detailed information on bank-firm relationships.We find that bank branches facing stiff local competition engage considerably more in relationship-based lending.Our results illustrate that competition and relationships are not necessarily inimical.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2006-68.

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Date of creation: 2006
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Handle: RePEc:dgr:kubcen:200668

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Keywords: bank orientation; bank industry specialization; competition; lending relationships;

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