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Why are loan rates sticky: A perspective from bank–firm relationship

Author

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  • Cheng, Liubing
  • Chen, Yanyan
  • Zhang, Yan

Abstract

This study investigates loan rate stickiness—the partial adjustment of loan rates to changes in credit risk. We show that the primary driver of this stickiness is banks' utilization of private information in relationship lending to extract rents. Stickiness is stronger when credit risk declines or when prior rents are positive, which raises firms’ loan costs. This effect attenuates as the bank–firm relationship length increases. We further demonstrate that banks accommodate this stickiness by adjusting loan maturity. Our study establishes an information-monopoly mechanism for loan rate stickiness and sheds new light on the dynamic strategies banks employ in setting loan prices in response to evolving credit risk.

Suggested Citation

  • Cheng, Liubing & Chen, Yanyan & Zhang, Yan, 2026. "Why are loan rates sticky: A perspective from bank–firm relationship," Economic Modelling, Elsevier, vol. 161(C).
    • Handle: RePEc:eee:ecmode:v:161:y:2026:i:c:s0264999326001586
    DOI: 10.1016/j.econmod.2026.107629
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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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