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(Just) first time lucky ? The impact of single versus multiple bank lending relationships on firms and banks' behavior

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  • Giorgia Barboni
  • Tania Treibich
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    Abstract

    The widespread evidence of multiple bank lending relationships in credit markets suggests that rms are interested in setting up a diversity of banking links. However, it is hard to know from the empirical data whether a rm's observed number of lenders is symptomatic of nancial constraints or rather a well-designed strategy. We design an experimental credit to analyze the determinants of multiple bank lending relationships, both from the demand and the supply side. Our results show that borrowers prefer multiple lending when they are credit rationed and unable to stabilize their lending source, whatever their risk level. Moreover, rationed borrowers are less likely to repay and display a higher tendency to switch between lenders. At the same time, we observe that the determinants of lending change according to the type of information available on the loan applicants. If their quality is not observable, only credit history and relationship length matter, while the borrowers' behavior clearly impacts the lending decision if information is complete. Our ndings support the view that the number of banking relationships is mainly determined by the supply side.

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    Bibliographic Info

    Paper provided by Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy in its series LEM Papers Series with number 2012/13.

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    Date of creation: 27 Aug 2012
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    Handle: RePEc:ssa:lemwps:2012/13

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    Related research

    Keywords: Repeated Games; Information Asymmetries; Multiple Lending; Relationship lending;

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    1. Elena Carletti & Vittoria Cerasi & Sonja Daltung, 2006. "Multiple-bank lending: diversification and free-riding in monitoring," Working Papers 20061103, Università degli Studi di Milano-Bicocca, Dipartimento di Statistica, revised Nov 2006.
    2. João A. C. Santos & Luísa A. Farinha, 2000. "Switching from single to multiple bank lending relationships: determinants and implications," BIS Working Papers 83, Bank for International Settlements.
    3. Brown, Martin & Zehnder, Christian, 2010. "The emergence of information sharing in credit markets," Journal of Financial Intermediation, Elsevier, vol. 19(2), pages 255-278, April.
    4. Brown, Martin & Serra-Garcia, Marta, 2011. "Debt Enforcement and Relational Contracting," Discussion Papers in Economics 12287, University of Munich, Department of Economics.
    5. Ongena, Steven & Smith, David C., 2000. "What Determines the Number of Bank Relationships? Cross-Country Evidence," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 26-56, January.
    6. Luigi Guiso & Raoul Minetti, 2010. "The Structure of Multiple Credit Relationships: Evidence from U.S. Firms," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(6), pages 1037-1071, 09.
    7. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
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