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First Time Lucky? An Experiment on Single versus Multiple Bank Lending Relationships

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  • Giorgia Barboni
  • Tania Treibich

Abstract

The widespread evidence of multiple bank lending relationships in credit markets suggests that firms are interested in setting up a diversity of banking links. However, it is hard to know from the empirical data whether a firm's observed number of lenders is symptomatic of financial constraints or rather a well-designed strategy. We design an experimental credit market to analyze the determinants of multiple bank lending relationships, both from the demand and the supply side. Our results show that borrowers prefer multiple lending when they are credit rationed and unable to stabilize their lending source, whatever their risk level. Moreover, rationed borrowers are less likely to repay and display a higher tendency to switch between lenders. At the same time, we observe that the determinants of lending change according to the type of information available on the loan applicants. Overall, our findings support the view that the number of banking relationships is mainly determined by the supply side.

Suggested Citation

  • Giorgia Barboni & Tania Treibich, 2013. "First Time Lucky? An Experiment on Single versus Multiple Bank Lending Relationships," GREDEG Working Papers 2013-28, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
  • Handle: RePEc:gre:wpaper:2013-28
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    File URL: http://www.gredeg.cnrs.fr/working-papers/GREDEG-WP-2013-28.pdf
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    References listed on IDEAS

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    Cited by:

    1. Wei Yin & Kent Matthews, 2017. "Single Versus Multiple Banking Relationships-Evidence From Chinese Lending Market," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(01), pages 227-250, March.

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    More about this item

    Keywords

    Repeated games; experiment; information asymmetries; multiple lending; relationship lending;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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