TY - JOUR
T1 - So what do I get? The bank's view of lending relationships
AU - Bharath, Sreedhar
AU - Dahiya, Sandeep
AU - Saunders, Anthony
AU - Srinivasan, Anand
N1 - Funding Information:
Dahiya acknowledges the support of the Lee Higdon, Jr. Faculty Research Fellowship provided by McDonough School of Business. Srinivasan acknowledges the financial support of the Terry-Sanford research grant and the University of Georgia Research Foundation research grant during the course of this project. This is a substantially revised version of an earlier paper of the same title. This paper has benefited from suggestions and comments from the referee and seminar participants at the AFA 2005 meetings, American University, Drexel University, the DIW Berlin Conference on Bank Relationships, Credit Extension and the Macroeconomy, the Federal Reserve Bank of Chicago's Conference on Bank Structure and Competition, the Federal Reserve Bank of New York, Ohio State University and JFE-sponsored Conference on Agency Problems and Conflicts of Interest in Financial Intermediaries, the Federal Reserve Board of Governors in Washington DC, the Federal Deposit Insurance Corporation, the Financial Management Association 2004 meetings, George Mason University, Office of Controller of Currency, University of Michigan, University of Virginia, and Washington University. We thank Chris James, Allen Berger, George Benston, Christa Bouwman, Steven Ongena, Tim Loughran, and Greg Udell for their helpful comments.
PY - 2007/8
Y1 - 2007/8
N2 - While many empirical studies document borrower benefits of lending relationships, less is known about lender benefits. A relationship lender's informational advantage over a non-relationship lender may generate a higher probability of selling information-sensitive products to its borrowers. Our results show that the probability of a relationship lender providing a future loan is 42%, while for a non-relationship lender, this probability is 3%. Consistent with theory, we find that borrowers with greater information asymmetries are significantly likely to obtain future loans from their relationship lenders. Relationship lenders are likely to be chosen to provide debt/equity underwriting services, but this effect is economically small.
AB - While many empirical studies document borrower benefits of lending relationships, less is known about lender benefits. A relationship lender's informational advantage over a non-relationship lender may generate a higher probability of selling information-sensitive products to its borrowers. Our results show that the probability of a relationship lender providing a future loan is 42%, while for a non-relationship lender, this probability is 3%. Consistent with theory, we find that borrowers with greater information asymmetries are significantly likely to obtain future loans from their relationship lenders. Relationship lenders are likely to be chosen to provide debt/equity underwriting services, but this effect is economically small.
KW - Bank loans
KW - Debt/equity underwriting
KW - Information asymmetry
KW - Lending relationships
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U2 - 10.1016/j.jfineco.2005.08.003
DO - 10.1016/j.jfineco.2005.08.003
M3 - Article
AN - SCOPUS:34447640695
SN - 0304-405X
VL - 85
SP - 368
EP - 419
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 2
ER -