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Relationship lending in a financial turmoil

  • Stefania De Mitri

    ()

    (Bank of Italy)

  • Giorgio Gobbi

    ()

    (Bank of Italy)

  • Enrico Sette

    ()

    (Bank of Italy)

We investigate whether the shape of relations between banks and firms has had a detectable effect in mitigating the credit contraction that followed Lehman's default in September 2008. Using micro data on a large sample of Italian firms, we analyze the relation between firms' debt concentration and credit availability. We show that firms borrowing from a higher number of banks suffered on average a larger contraction in bank credit and a higher probability of experiencing a reduction in outstanding bank debt. The same results hold for firms diversifying their borrowing, concentrating a smaller proportion with the main bank. The stability of the bank-firm relationship, measured by its duration, also appears to have been of some value in mitigating the credit restriction. Our results also suggest the existence of a different regime in credit supply towards firms experiencing a reduction in outstanding bank debt. If there is a contraction in credit, the decrease is limited if relations are more intense i.e. a lower number of financial institutions from which the firm borrows, more concentrated lending and relations of greater duration. The opposite is true for firms with positive credit growth.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 772.

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Date of creation: Sep 2010
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Handle: RePEc:bdi:wptemi:td_772_10
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Web page: http://www.bancaditalia.it
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  1. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
  2. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008. "Zombie Lending and Depressed Restructuring in Japan," American Economic Review, American Economic Association, vol. 98(5), pages 1943-77, December.
  3. Zarutskie, Rebecca, 2006. "Evidence on the effects of bank competition on firm borrowing and investment," Journal of Financial Economics, Elsevier, vol. 81(3), pages 503-537, September.
  4. Ugo Albertazzi & Domenico J. Marchetti, 2010. "Credit supply, flight to quality and evergreening: an analysis of bank-firm relationships after Lehman," Temi di discussione (Economic working papers) 756, Bank of Italy, Economic Research and International Relations Area.
  5. Sumit Agarwal, 2010. "Distance and Private Information in Lending," Review of Financial Studies, Society for Financial Studies, vol. 23(7), pages 2757-2788, July.
  6. Vasso Ioannidou & Steven Ongena, 2010. ""Time for a Change": Loan Conditions and Bank Behavior when Firms Switch Banks," Journal of Finance, American Finance Association, vol. 65(5), pages 1847-1877, October.
  7. Fabio Panetta & Paolo Angelini & Ugo Albertazzi & Francesco Columba & Wanda Cornacchia & Antonio Di Cesare & Andrea Pilati & Carmelo Salleo & Giovanni Santini, 2009. "Financial sector pro-cyclicality: lessons from the crisis," Questioni di Economia e Finanza (Occasional Papers) 44, Bank of Italy, Economic Research and International Relations Area.
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  9. Emilia Bonaccorsi di Patti & Enrico Sette, 2012. "Bank balance sheets and the transmission of financial shocks to borrowers: evidence from the 2007-2008 crisis," Temi di discussione (Economic working papers) 848, Bank of Italy, Economic Research and International Relations Area.
  10. Angelini, P. & Di Salvo, R. & Ferri, G., 1998. "Availability and cost of credit for small businesses: Customer relationships and credit cooperatives," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 925-954, August.
  11. Asim Ijaz Khwaja & Atif Mian, 2005. "Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market," The Quarterly Journal of Economics, MIT Press, vol. 120(4), pages 1371-1411, November.
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  13. Pietro Alessandrini & Andrea F. Presbitero & Alberto Zazzaro, 2009. "Banks, Distances and Firms' Financing Constraints," Review of Finance, European Finance Association, vol. 13(2), pages 261-307.
  14. Gopalan, Radhakrishnan & Udell, Gregory F. & Yerramilli, Vijay, 2011. "Why Do Firms Form New Banking Relationships?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(05), pages 1335-1365, November.
  15. Jo´┐ŻO A. C. Santos & Andrew Winton, 2008. "Bank Loans, Bonds, and Information Monopolies across the Business Cycle," Journal of Finance, American Finance Association, vol. 63(3), pages 1315-1359, 06.
  16. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-81, July.
  17. Elsas, Ralf, 2005. "Empirical determinants of relationship lending," Journal of Financial Intermediation, Elsevier, vol. 14(1), pages 32-57, January.
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