Advanced Search
MyIDEAS: Login to save this paper or follow this series

Information Verifiability, Bank Organization, Bank Competition and Bank-Borrower Relationships

Contents:

Author Info

  • Masaji Kano
  • Hirofumi Uchida
  • Gregory F. Udell
  • Wako Watanabe

Abstract

This paper investigates whether the benefits of bank-borrower relationships differ depending on three factors identified in the theoretical literature: verifiability of information, bank size and complexity, and bank competition. We extend the current literature by analyzing how relationship lending affects loan contract terms and credit availability in an empirical model that simultaneously accounts for all three of these factors. Also, our unique data set of Japanese SMEs allows us to examine for the first time using micro firm data the value of information verifiability in the form of audited financial statements in setting loan contract terms. We find that firms benefit most from bank-borrower relationships when they do not have audited financial statements and when they borrow from small banks in less competitive markets, which is consistent with a number of different theoretical studies.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.rieti.go.jp/jp/publications/dp/06e003.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 06003.

as in new window
Length: 33 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:eti:dpaper:06003

Contact details of provider:
Postal: 11th floor, Annex, Ministry of Economy, Trade and Industry (METI) 1-3-1, Kasumigaseki Chiyoda-ku, Tokyo, 100-8901
Phone: +81-3-3501-1363
Fax: +81-3-3501-8577
Email:
Web page: http://www.rieti.go.jp/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

References

References listed on IDEAS
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.:
as in new window
  1. Dell'Ariccia, Giovanni, 2001. "Asymmetric information and the structure of the banking industry," European Economic Review, Elsevier, vol. 45(10), pages 1957-1980, December.
  2. Brick, Ivan E. & Palia, Darius, 2007. "Evidence of jointness in the terms of relationship lending," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 16(3), pages 452-476, July.
  3. 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.
  4. Masayo Shikimi (Tomiyama), 2005. "Do Firms Benefit from Multiple Banking Relationships?: Evidence from Small and Medium-Sized Firms in Japan," Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University d04-70, Institute of Economic Research, Hitotsubashi University.
  5. Santiago Carbó-Valverde & Francisco Rodríguez-Fernández & Gregory F. Udell, 2009. "Bank Market Power and SME Financing Constraints," Review of Finance, European Finance Association, European Finance Association, vol. 13(2), pages 309-340.
  6. de la Torre, Augusto & Martínez Pería, María Soledad & Schmukler, Sergio L., 2010. "Bank involvement with SMEs: Beyond relationship lending," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2280-2293, September.
  7. Mitchell A. Petersen & Raghuram G. Rajan, 1994. "The Effect of Credit Market Competition on Lending Relationships," NBER Working Papers 4921, National Bureau of Economic Research, Inc.
  8. Berger, Allen N. & Black, Lamont K., 2011. "Bank size, lending technologies, and small business finance," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 724-735, March.
  9. Jonathan Scott, 2004. "Small Business and the Value of Community Financial Institutions," Journal of Financial Services Research, Springer, Springer, vol. 25(2), pages 207-230, April.
  10. Jeremy C. Stein, 2002. "Information Production and Capital Allocation: Decentralized versus Hierarchical Firms," Journal of Finance, American Finance Association, American Finance Association, vol. 57(5), pages 1891-1921, October.
  11. Robert Hauswald & Robert Marquez, 2006. "Competition and Strategic Information Acquisition in Credit Markets," Review of Financial Studies, Society for Financial Studies, vol. 19(3), pages 967-1000.
  12. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, American Finance Association, vol. 47(4), pages 1367-400, September.
  13. Shaffer, Sherrill, 2004. "Patterns of competition in banking," Journal of Economics and Business, Elsevier, Elsevier, vol. 56(4), pages 287-313.
  14. Boot, Arnoud W A & Thakor, Anjan, 1997. "Can Relationship Banking Survive Competition?," CEPR Discussion Papers 1592, C.E.P.R. Discussion Papers.
  15. Elsas, Ralf & Krahnen, Jan Pieter, 1998. "Is relationship lending special? Evidence from credit-file data in Germany," CFS Working Paper Series 1998/05, Center for Financial Studies (CFS).
  16. Kano, Masaji & Tsutsui, Yoshiro, 2003. "Geographical segmentation in Japanese bank loan markets," Regional Science and Urban Economics, Elsevier, vol. 33(2), pages 157-174, March.
  17. Harhoff, Dietmar & Korting, Timm, 1998. "Lending relationships in Germany - Empirical evidence from survey data," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1317-1353, October.
  18. Inderst, Roman & Mueller, Holger M, 2006. "A Lender-Based Theory of Collateral," CEPR Discussion Papers 5695, C.E.P.R. Discussion Papers.
  19. Berger, Allen N. & Udell, Gregory F., 2006. "A more complete conceptual framework for SME finance," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 2945-2966, November.
  20. Degryse, Hans & Van Cayseele, Patrick, 2000. "Relationship Lending within a Bank-Based System: Evidence from European Small Business Data," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 9(1), pages 90-109, January.
  21. Greenbaum, Stuart I. & Kanatas, George & Venezia, Itzhak, 1989. "Equilibrium loan pricing under the bank-client relationship," Journal of Banking & Finance, Elsevier, vol. 13(2), pages 221-235, May.
  22. Cole, Rebel A. & Goldberg, Lawrence G. & White, Lawrence J., 2004. "Cookie Cutter vs. Character: The Micro Structure of Small Business Lending by Large and Small Banks," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(02), pages 227-251, June.
  23. Sharpe, Steven A, 1990. " Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships," Journal of Finance, American Finance Association, American Finance Association, vol. 45(4), pages 1069-87, September.
  24. Elyasiani, Elyas & Goldberg, Lawrence G., 2004. "Relationship lending: a survey of the literature," Journal of Economics and Business, Elsevier, Elsevier, vol. 56(4), pages 315-330.
  25. Cole, Rebel A., 1998. "The importance of relationships to the availability of credit," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 959-977, August.
  26. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-81, July.
  27. Jimenez, Gabriel & Salas, Vicente & Saurina, Jesus, 2006. "Determinants of collateral," Journal of Financial Economics, Elsevier, Elsevier, vol. 81(2), pages 255-281, August.
  28. Hirofumi Uchida & Gregory F.Udell & Wako Watanabe, 2007. "Bank Size and Lending Relationships in Japan," NBER Working Papers 13005, National Bureau of Economic Research, Inc.
  29. Berger, Allen N. & Miller, Nathan H. & Petersen, Mitchell A. & Rajan, Raghuram G. & Stein, Jeremy C., 2005. "Does function follow organizational form? Evidence from the lending practices of large and small banks," Journal of Financial Economics, Elsevier, Elsevier, vol. 76(2), pages 237-269, May.
  30. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, American Finance Association, vol. 49(1), pages 3-37, March.
  31. Scott, Jonathan A. & Dunkelberg, William C., 2010. "Competition for small firm banking business: Bank actions versus market structure," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2788-2800, November.
  32. Berger, Allen N. & Rosen, Richard J. & Udell, Gregory F., 2005. "Does Market Size Structure Affect Competition? The Case of Small Business Lending," CEI Working Paper Series, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University 2005-8, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  33. Jiménez, Gabriel & Salas, Vicente & Saurina, Jesús, 2009. "Organizational distance and use of collateral for business loans," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 234-243, February.
  34. Berger, Allen N. & Udell, Gregory F., 1990. "Collateral, loan quality and bank risk," Journal of Monetary Economics, Elsevier, Elsevier, vol. 25(1), pages 21-42, January.
  35. Ongena, S. & Smith, D.C., 2000. "Bank relationships: A review," Open Access publications from Tilburg University urn:nbn:nl:ui:12-80678, Tilburg University.
  36. Booth, James R. & Booth, Lena Chua, 2006. "Loan Collateral Decisions and Corporate Borrowing Costs," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 38(1), pages 67-90, February.
  37. Giovanni Dell'Ariccia & Ezra Friedman & Robert Marquez, 1999. "Adverse Selection as a Barrier to Entry in the Banking Industry," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 515-534, Autumn.
  38. Blackwell, David W & Winters, Drew B, 1997. "Banking Relationships and the Effect of Monitoring on Loan Pricing," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 20(2), pages 275-89, Summer.
  39. Angelini, P. & Di Salvo, R. & Ferri, G., 1998. "Availability and cost of credit for small businesses: Customer relationships and credit cooperatives," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 925-954, August.
  40. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(4), pages 689-721, August.
  41. Han, Liang & Fraser, Stuart & Storey, David J., 2009. "Are good or bad borrowers discouraged from applying for loans? Evidence from US small business credit markets," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 415-424, February.
  42. Ongena, Steven & Smith, David C., 2001. "The duration of bank relationships," Journal of Financial Economics, Elsevier, Elsevier, vol. 61(3), pages 449-475, September.
  43. Boot, Arnoud W A & Thakor, Anjan V, 1994. "Moral Hazard and Secured Lending in an Infinitely Repeated Credit Market Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 899-920, November.
  44. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 9(1), pages 7-25, January.
  45. Wenying Jiangli & Haluk Unal & Chiwon Yom, 2008. "Relationship Lending, Accounting Disclosure, and Credit Availability during the Asian Financial Crisis," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 40(1), pages 25-55, 02.
  46. Elsas, Ralf, 2005. "Empirical determinants of relationship lending," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 14(1), pages 32-57, January.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eti:dpaper:06003. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (NUKATANI Sorahiko).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.