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Relationship lending and SMEs’ funding costs over the cycle: why diversification of borrowing matters

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Listed:
  • Mikael Beatriz
  • Jérôme Coffinet
  • Théo Nicolas

Abstract

Using a unique panel design that enables to control for bank, firm, market and loan heterogeneities, we confirm that relationship lenders charge higher rates in good times and lower rates in bad times. However, we show that risky single-bank firms do not benefit from this insurance mechanism and are "held-up" by relationship lenders. Local bankcompetition and higher non-bank finance dependence alleviate this information-monopolistic behavior. Finally, long-term loans and small, non-trading-oriented and well capitalized banks drive the benefits of relationship lending.

Suggested Citation

  • Mikael Beatriz & Jérôme Coffinet & Théo Nicolas, 2018. "Relationship lending and SMEs’ funding costs over the cycle: why diversification of borrowing matters," Working papers 705, Banque de France.
  • Handle: RePEc:bfr:banfra:705
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    References listed on IDEAS

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    More about this item

    Keywords

    relationship lending; financial crisis; interest rates; bank lending channel; SME; competition.;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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