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Firm Failure and Relationship Lending:New Evidence from Small Businesses

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  • José Eduardo Gómez-González

  • Nidia Ruth Reyes

Abstract

We study the effect of relationship lending on small firms failure probability using a uniquely rich data set comprised of information on individual loans of a large number of small firms in Colombia. We control for firm-specific variables and find that small firms involved in long-term liaisons with commercial banks have a significantly lower probability of becoming bankrupt than otherwise identical firms not involved in a long-term credit relationship. We also find that small firms with multiple banking relationships face a lower failure hazard than otherwise identical firms involved in a unique long-term relationship.

Suggested Citation

  • José Eduardo Gómez-González & Nidia Ruth Reyes, 2011. "Firm Failure and Relationship Lending:New Evidence from Small Businesses," Borradores de Economia 638, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:638
    DOI: 10.32468/be.638
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    1. von Rheinbaben, Joachim & Ruckes, Martin, 2004. "The number and the closeness of bank relationships," Journal of Banking & Finance, Elsevier, vol. 28(7), pages 1597-1615, July.
    2. Gómez-González, José Eduardo & Reyes, Nidia Ruth, 2011. "The number of banking relationships and the business cycle: New evidence from Colombia," Economic Systems, Elsevier, vol. 35(3), pages 408-418, September.
    3. von Thadden, Ernst-Ludwig, 2004. "Asymmetric information, bank lending and implicit contracts: the winner's curse," Finance Research Letters, Elsevier, vol. 1(1), pages 11-23, March.
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    Keywords

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    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General

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