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Lending relationships and the collateral channel

Anderson, Gareth, Bahaj, Saleem, Chavaz, Matthieu, Foulis, Angus and Pinter, Gabor (2018) Lending relationships and the collateral channel. CFM Discussion Paper Series (CFM-DP2018-13). Centre For Macroeconomics, London School of Economics and Political Science, London, UK.

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Abstract

This paper shows that lending relationships insulate corporate investment from shocks to collateral values. We construct a novel database covering the banking relationships of UK firms, as well as those of their board members and executives. We find that the sensitivity of corporate investment to shocks to real estate collateral value is halved when the length of the bank-firm relationship increases from the 25th to the 75th percentile. This effect is substantially reduced for firms whose executives have a personal mortgage relationship with their firm’s bank. Our findings provide support for theories where collateral and private information are substitutes in mitigating credit frictions over the cycle.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.centreformacroeconomics.ac.uk/Home.aspx
Additional Information: © 2018 Centre for Macroeconomics
Divisions: Centre for Macroeconomics
Subjects: H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Centre for Macroeconomics
Date Deposited: 05 Oct 2018 14:28
Last Modified: 03 Jun 2019 23:25
URI: http://eprints.lse.ac.uk/id/eprint/90371

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