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The Impact of Competition on Bank Orientation

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  • Degryse, H.A.

    (Tilburg University, Center For Economic Research)

  • Ongena, S.

    (Tilburg University, Center For Economic Research)

Abstract

How do banks react to increased competition?Recent banking theory offers conflicting predictions about the impact of competition on bank orientation - i.e., the choice of relationship based versus transactional banking.We empirically investigate the impact of interbank competition on bank branch orientation.We employ a unique data set containing detailed information on bank-firm relationships.We find that bank branches facing stiff local competition engage considerably more in relationship-based lending.Our results illustrate that competition and relationships are not necessarily inimical.

Suggested Citation

  • Degryse, H.A. & Ongena, S., 2006. "The Impact of Competition on Bank Orientation," Discussion Paper 2006-68, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:3225d4f4-ff7a-4de3-bb8f-8476f370185e
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    Keywords

    bank orientation; bank industry specialization; competition; lending relationships;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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