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Short-Term Loans and Long-Term Relationships: Relationship Lending in Early America

  • Bodenhorn, Howard

Recent banking theory holds that durable firm-bank relationships are valuable to both parties. This paper uses the contract-specific loan records of a 19th-century U.S. bank and shows that firms with extended relationships received three principal benefits. First, firms with extended relationships had lower credit costs. Second, long-term customers provided fewer personal guarantees, which were an alternative to collateral. Third, long-term customers were more likely to have loan terms renegotiated during a credit crunch. These findings support theories that banks realize cost advantages through the use of proprietary information.

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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 35 (2003)
Issue (Month): 4 (August)
Pages: 485-505

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Handle: RePEc:mcb:jmoncb:v:35:y:2003:i:4:p:485-505
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  27. Hans Degryse & Partick Van cayseele, 1998. "Relationship Lending within a Bank-based System: Evidence from European Small Business Data," Center for Economic Studies - Discussion papers ces9816, Katholieke Universiteit Leuven, Centrum voor Economische Studiƫn.
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