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When arm’s length is too far. Relationship banking over the credit cycle

Beck, Thorsten, Degryse, Hans, De Haas, Ralph and van Horen, Neeltje (2015) When arm’s length is too far. Relationship banking over the credit cycle. SRC Discussion Paper (No 33). Systematic Risk Centre, The London School of Economics and Political Science, London, UK.

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Abstract

Using a novel way to identify relationship and transaction banks, we study how banks’ lending techniques affect credit constraints of small and medium-sized enterprises across emerging Europe. We link the lending techniques that banks use in the direct vicinity of firms to these firms’ credit constraints at two contrasting points of the credit cycle. We show that relationship lending alleviates credit constraints during a cyclical downturn but not during a boom period. The positive impact of relationship lending in a downturn is strongest for smaller and more opaque firms and in regions where the downturn is more severe. Additional evidence suggests that the reduction in credit constraints due to relationship lending helps to mitigate the adverse impact of an economic downturn on local firm growth and does not constitute evergreening of underperforming loans.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.systemicrisk.ac.uk
Additional Information: © 2015 The Authors
Divisions: Systemic Risk Centre
Subjects: H Social Sciences > HB Economic Theory
JEL classification: F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Sets: Research centres and groups > Systemic Risk Centre
Date Deposited: 19 May 2015 11:29
Last Modified: 20 Feb 2019 03:52
Projects: ES/K002309/1
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/62005

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