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Relationship lending in a financial turmoil

Author

Listed:
  • Giorgio Gobbi

    (Bank of Italy)

  • Enrico Sette

    (Bank of Italy)

Abstract

This paper sheds new light on the value of relationship lending by studying whether, after Lehman's default, banks provided a steadier flow of credit and charged lower interest rates, to those firms they established a closer relation with. By exploiting the presence of multiple banking relationships, we are able to control for firms' and banks' unobserved characteristics. Results show that credit growth has been higher if: i) the lending relation was longer; ii) the distance between the bank and the firm shorter; iii) the bank held a larger share of total credit. Similarly, banks increased the cost of credit less to firms they had a longer relation with and they were closer to. We also explore whether the eÏect of relationship lending depended upon bank or firm characteristics, or on the concentration of the local credit market. Finally, we test whether the eÏect of relationship lending changed during the crisis with respect to a pre-crisis period.

Suggested Citation

  • Giorgio Gobbi & Enrico Sette, 2012. "Relationship lending in a financial turmoil," Mo.Fi.R. Working Papers 59, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    • Handle: RePEc:anc:wmofir:59
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    More about this item

    Keywords

    cost of credit; credit supply; financial crisis; relationship lending;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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