(Just) first time lucky ? The impact of single versus multiple bank lending relationships on firms and banks' behavior
AbstractThe 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 InfoPaper 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.
Date of creation: 27 Aug 2012
Date of revision:
Repeated Games; Information Asymmetries; Multiple Lending; Relationship lending;
Other versions of this item:
- Giorgia Barboni & Tania Treibich, 2012. "(Just) first time lucky ?the impact of single versus multiple bank lending relationships on firms and banks'behavior," Documents de Travail de l'OFCE 2012-26, Observatoire Francais des Conjonctures Economiques (OFCE).
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-09 (All new papers)
- NEP-BAN-2012-09-09 (Banking)
- NEP-EXP-2012-09-09 (Experimental Economics)
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