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Bank Lending Standards and Access to Lines of Credit

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  • CEM DEMIROGLU
  • CHRISTOPHER JAMES
  • ATAY KIZILASLAN

Abstract

This paper examines how changes in bank lending standards are related to the availability of bank lines of credit for private and comparable public firms. Overall, we find that access to lines of credit is more contingent on bank lending standards for private than for public firms. The impact of bank lending standards is however asymmetric: while private firms are less likely than public firms to gain access to new lines when credit market conditions are tight, we find no difference between public and private firms in terms of their use or retention of pre‐existing lines. We also find that private firms without lines of credit use more trade credit when bank lending standards are tight, which is suggestive of a supply effect. Overall, the evidence suggests that “credit crunches” are likely to have a disproportionate impact on private firms. However, pre‐existing banking relationships appear to mitigate the impact of these contractions on private firms.

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  • Cem Demiroglu & Christopher James & Atay Kizilaslan, 2012. "Bank Lending Standards and Access to Lines of Credit," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(6), pages 1063-1089, September.
  • Handle: RePEc:wly:jmoncb:v:44:y:2012:i:6:p:1063-1089
    DOI: 10.1111/j.1538-4616.2012.00523.x
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    2. TSURUTA Daisuke & UCHIDA Hirofumi, 2021. "Does Trade Credit Absorb Adverse Shocks?," Discussion papers 21089, Research Institute of Economy, Trade and Industry (RIETI).
    3. Barraza, Santiago & Civelli, Andrea, 2020. "Economic policy uncertainty and the supply of business loans," Journal of Banking & Finance, Elsevier, vol. 121(C).
    4. Andrea Orame, 2020. "The role of bank supply in the Italian credit market: evidence from a new regional survey," Temi di discussione (Economic working papers) 1279, Bank of Italy, Economic Research and International Relations Area.
    5. Wang, Xiaodong & Han, Liang & Huang, Xing, 2020. "Bank market power and SME finance: Firm-bank evidence from European countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 64(C).
    6. Degryse, Hans & Matthews, Kent & Zhao, Tianshu, 2018. "SMEs and access to bank credit: Evidence on the regional propagation of the financial crisis in the UK," Journal of Financial Stability, Elsevier, vol. 38(C), pages 53-70.
    7. David C. Ling & Andy Naranjo & Benjamin Scheick, 2016. "Credit Availability and Asset Pricing Dynamics in Illiquid Markets: Evidence from Commercial Real Estate Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(7), pages 1321-1362, October.
    8. Filardo, Andrew J. & Siklos, Pierre L., 2020. "The cross-border credit channel and lending standards surveys," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 67(C).
    9. Arbana Sahiti, 2017. "Creative Accounting- Nature, Usage, Labor and Relation with the Own Crisis Consequences in Practice in Kosovo," European Journal of Economics and Business Studies Articles, Revistia Research and Publishing, vol. 3, January -.
    10. Altunok, Fatih & Mitchell, Karlyn & Pearce, Douglas K., 2020. "The trade credit channel and monetary policy transmission: Empirical evidence from U.S. panel data," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 226-250.
    11. Tsuruta, Daisuke & Uchida, Hirofumi, 2019. "The real driver of trade credit," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    12. Joao A. C. Santos & S. Vish Viswanathan, 2020. "Bank Syndicates and Liquidity Provision," NBER Working Papers 27701, National Bureau of Economic Research, Inc.
    13. G. Atzeni & L. Deidda & P. Arca, 2021. "The Signalling Role of Trade Credit on Loan Contracts: Evidence from a Counterfactual Analysis," Working Paper CRENoS 202106, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    14. Acharya, Viral & Almeida, Heitor & Ippolito, Filippo & Perez, Ander, 2014. "Bank lines of credit as contingent liquidity: A study of covenant violations and their implications," Working Paper Series 1702, European Central Bank.
    15. Moro, Andrea & Maresch, Daniela & Ferrando, Annalisa & Udell, Gregory F., 2022. "Funding innovation and the regulatory environment – The role of employment protection legislation," Journal of Business Research, Elsevier, vol. 145(C), pages 745-756.
    16. Michel Alexandre & Gilberto Tadeu Lima, 2019. "Macroeconomic Impacts of Trade Credit: An Agent-Based Modeling Exploration," Working Papers, Department of Economics 2019_31, University of São Paulo (FEA-USP).
    17. James R. Brown & Matthew T. Gustafson & Ivan T. Ivanov, 2021. "Weathering Cash Flow Shocks," Journal of Finance, American Finance Association, vol. 76(4), pages 1731-1772, August.
    18. Honda, Tomohito, 2022. "The Effects of Credit Lines on Cash Holdings and Capital Investment: Evidence from Japan," RCESR Discussion Paper Series DP22-2, Research Center for Economic and Social Risks, Institute of Economic Research, Hitotsubashi University.
    19. Santiago Carbó‐Valverde & Francisco Rodríguez‐Fernández & Gregory F. Udell, 2016. "Trade Credit, the Financial Crisis, and SME Access to Finance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(1), pages 113-143, February.
    20. Do, Hung X. & Nguyen, Nhut H. & Nguyen, Quan M.P., 2022. "Financial leverage and stock return comovement," Journal of Financial Markets, Elsevier, vol. 60(C).
    21. Anna Białek-Jaworska & Natalia Nehrebecka, 2016. "The role of bank credit in business financing in Poland," Working Papers 2016-03, Faculty of Economic Sciences, University of Warsaw.
    22. Natalia Nehrebecka & Aneta Dzik-Walczak, 2016. "Publication selection bias in the sources of financing the enterprises research? A Meta-Regression Analysis," Working Papers 2016-02, Faculty of Economic Sciences, University of Warsaw.
    23. Wang, Xiaodong & Han, Liang & Huang, Xing, 2020. "Bank competition, concentration and EU SME cost of debt," International Review of Financial Analysis, Elsevier, vol. 71(C).
    24. Tsuruta, Daisuke, 2015. "Bank loan availability and trade credit for small businesses during the financial crisis," The Quarterly Review of Economics and Finance, Elsevier, vol. 55(C), pages 40-52.

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