2012/13 | LEM Working Paper Series | |
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(Just) first time lucky ? The impact of single versus multiple bank lending relationships on firms and banks' behavior |
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Giorgia Barboni and Tania Treibich |
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Keywords | ||
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Repeated Games, Information Asymmetries, Multiple Lending, Relationship lending
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JEL Classifications | ||
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C72, C73, C92, G21
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Abstract | ||
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The widespread evidence of multiple bank lending relationships in
credit markets suggests that rms are interested in setting up a
diversity of banking links. However, it is hard to know from the
empirical data whether a rm's observed number of lenders is
symptomatic of nancial constraints or rather a well-designed strategy.
We design an experimental credit 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. If their quality is not observable, only credit history
and relationship length matter, while the borrowers' behavior clearly
impacts the lending decision if information is complete. Our ndings
support the view that the number of banking relationships is mainly
determined by the supply side.
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