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Based on a unique database (data on 2529 bank-firm relationships of 403 firms from 2012 to 2018) provided by the Central Bank of Tunisia, this article analyses the impact of the intensity and duration of bank-firm relationship on loan quality. By estimating a panel ordered probit model, the results show that the intensity of the lending relationship has a positive (negative) impact on high (medium or low) quality loans. In addition, the duration of the bank-firm relationship increases the probability of low-quality loans. We also find that the impact of relationship lending on loan quality differs according to the level of profitability of the firm. Low and non-performing firms tend to have longer and closer bank relationship, whereas it is the opposite for performing firms. Our results suggest that in an emerging market concentrated around a few banks, longer and closer banking relationships are mainly in favour of low and non-performing firms, reflecting adverse selection and strong moral hazard. [ABSTRACT FROM AUTHOR]

Native Community Development Financial Institutions (Native CDFIs) have become an increasingly important source of credit and financial services in the areas on or near American Indian reservations in the United States. Guided by a conceptual framework developed on the basis of the related finance literature and drawing on loan‐level data from eleven Native CDFI loan funds, we offer the first systematic quantitative analysis of lending in the Native CDFI industry. As hypothesized, Native CDFIs on average give out small loans but support borrowers in varied circumstances with diverse loan products. Important predictors of delinquency include both conventional, hard information‐based, measures of client risk, and alternative, soft information‐based, community‐informed and character‐based measures. Overall, these findings lend strong support to holistic approaches for assessing client creditworthiness for Native CDFI operations. More generally, our analysis contributes new insights into the operations of an industry that plays an instrumental role in removing barriers to socioeconomic development in Native communities. [ABSTRACT FROM AUTHOR]

This study investigates the impact of borrower-lender distance on credit availability for private firms. Utilizing an extensive loan record history, we categorize loans into initial and subsequent borrowings. Our analysis reveals a consistent trend: loan size diminishes with increasing distance, even after accounting for Fintech effects. A noteworthy finding is the divergent role of financial connections. During initial borrowings, they mitigate the adverse effects of distance, while in subsequent borrowings, they become a positive signal to lenders, particularly post-soft information insights. These insights highlight intricate dynamics in credit availability, emphasizing the evolving roles of technology and financial connections in shaping lending relationships for private firms. [ABSTRACT FROM AUTHOR]

The literature on the effects of bank market power on access to credit has produced many results that are sometimes contradictory. Yet, all of these studies are based on unconsolidated data that ignore the national market power of banking groups. This results in an underestimation bias that this paper proposes to correct. Using a panel of more than 55,000 French firms covering the period 2006–2017, I consider a set of structural and non-structural measures of bank market power both at the unconsolidated and consolidated levels. My results strongly support the market power hypothesis which emphasizes the virtues of competition on interest rate setting. I find that bank market power increases the interest rate charged, but only when using my consolidated measures. This effect is stronger for small and risky firms and is concentrated on long-term loans. My findings highlight the need to take into account the capital linkages of subsidiaries within the same banking group in order to fully assess the implications of bank market power. [ABSTRACT FROM AUTHOR]

The economic impact of the COVID-19 pandemic placed many small businesses across the US in financial distress. In response to this, in March 2020 the US government introduced, as part of the CARES Act, the Paycheck Protection Program (PPP) intended to provide relief to small businesses and to preserve jobs during the pandemic. The latter resulted in three waves of funding distributed to small businesses through SBA approved lenders, mainly represented by US banks. By using a panel dataset of 4610 banks over the period Q1 2019–Q4 2020 and by employing a difference-in-differences approach (DiD), I investigate whether participation in the Paycheck Protection Program affected community banks' credit risk-taking behaviour in the post-PPP period, compared to their non-community banking counterparts in the US. I find that the Paycheck Protection Program led community banks to decrease their risk appetite outside of the program relative to non-community banks, consistent with their greater exposure to the commercial real estate sector, heavily hit by the pandemic. My results are robust to a battery of robustness tests and identification strategies. In this research article, I offer novel evidence on the indirect impact of the Paycheck Protection Program as a government-funded stimulus program administered through banks by investigating the indirect effect of the Paycheck Protection Program on the risk-taking of US community banks that dominate lending of PPP loans as a result of their competitive advantage in soft information-intensive small business lending. Such evidence is informative to policymakers as they weigh the merits of various program options to combat the economic damage imposed by the COVID-19 pandemic and as they consider the design of economic stimulus programs in response to future economic crises. [ABSTRACT FROM AUTHOR]

In response to the COVID-19 pandemic, Congress in conjunction with the Small Business Administration (SBA) created the Paycheck Protection Program (PPP) to help small business owners retain employees. We improve on previous literature exploring the relationship between bank density and PPP loan dispersion by implementing precisely geocoded data to map loans to commuting zones. Revisiting results in Deming and Weiler (2023), we confirm the statistically significant relationship between bank density and PPP loans per small business. We consider three distinct periods of lending to analyze how changes in the PPP loan program rules might have impacted dispersion. The coefficient in the regression of loans per small business on bank density is largest in the final wave of lending, and in commuting zones with high loan densities. This suggests that having additional bank branches in the commuting zone may have helped facilitate rapid dispersion of relief funds to high demand areas during the program. [ABSTRACT FROM AUTHOR]

This study examines the impact of relationship banking and collateral on the probability of firm loan default in Kosovo. Using a sample of 2,320 loan-level data from an individual bank credit register, findings indicate that stronger firm-bank relationships reduce the probability of default, and tighter credit policies regarding higher collateral requirements and interest rates have the opposite effect. Re-specifying the model to control for the banking sector concentration Hirschman-Herfindahl Index (HHI) and the Net Interest Margin (NIM), the firm-bank relationship is no longer statistically significant. Results show that the crisis negatively impacts credit risk, while HHI positively affects the probability of loan default. This evidence suggests that banking relationship matters only in competitive markets. To test the potential interaction effect between relationship banking and collateral, Fairlie's (1999) decomposition technique is deployed. Our results imply that high concentration levels in the banking sector render firm-bank relationships relatively less important. This is of utmost importance for SMEs, banks, and policymakers. [ABSTRACT FROM AUTHOR]

By exploiting a unique and proprietary panel dataset comprising 6480 Italian SMEs having a relationship with 99 cooperative banks over the period 2008–2014, we investigate the influence of the trade credit channel on firm investment decisions in the Italian market, distinguished by a considerable presence of relationship cooperative banks' branches with a heterogeneous geographical distribution. Firstly, our findings confirm a significant influence of the trade credit channel on firm investment decisions. Secondly, we document that SMEs located in those Italian provinces with an abundance of cooperative banks' branches rely less on trade credit to finance investments. Lastly, we show that longer firm-bank relationships decrease firm dependence on trade credit to boost investments. Our study is of particular relevance because it strengthens the effectiveness of the trade credit channel for SMEs in spurring corporate investments. Indeed, fostering a deep understanding of the real effects of firm financing sources is paramount to encourage investment by SMEs and to allow them to preserve their positioning in the market. Moreover, we exploit the Italian market, well-suited to perform such an analysis, since it is characterized by more inter-personal financing relationships as compared to other countries. [ABSTRACT FROM AUTHOR]

How does uncertainty affect the costs of raising finance in the bond market and via bank loans? Empirically, this paper finds that heightened uncertainty is accompanied by an increase in corporate bond spreads, whereas spreads on bank loans remain unchanged. This finding can be explained with a model that includes costly state verification and in which banks maintain long‐term relationships with borrowers and acquire information beyond what is publicly available. After an unexpected increase in uncertainty, the probability of borrower default increases. Banks leave the loan spread unchanged to maintain the relationship. In contrast, bond spreads increase because investors demand compensation for the increased default risk. [ABSTRACT FROM AUTHOR]

This study aims to examine the association between banks and firms in a loan. Our data set was pooled cross section data from 2014 to 2016, with long-term loans of firms listed in Indonesia Stock Exchange as a unit of analysis. We estimate our regression model using ordinary least square (OLS) estimator. The results revealed that lower-risk banks tend to associate with riskier but well-performing firms. Similarly, lower-capital banks tend to associate with riskier but well-performing firms. These results are quite contrary to previous studies conducted in developed countries. Lower risk banks have relationship with riskier and well-performing firms in condition that the amount of loan is small enough to be considered safe. Meanwhile, lower capital banks in this study, especially in Indonesia, may face the geographical problem which drives cost so high that makes banks charge higher interest to possibly riskier firms. This study makes contribution by providing evidence from a relative fragmented credit market. Future research on this topic is encouraged to look out more detail especially in the causality interpretation. [ABSTRACT FROM AUTHOR]

We conduct a survey among 1922 Swiss SMEs to analyze their access to bank loans. Credit-constrained SMEs are six times more likely to be discouraged than rejected. The most dominant reasons for being discouraged are too high collateral requirements, cumbersome application procedure, and the expectation of being turned down. Through a unique feature in the Swiss banking market, we also find new evidence for the importance of a strong firm–bank relationship. We challenge the assumption that discouraged borrowers are very similar to rejected borrowers. Our results indicate that the group of discouraged borrowers is more similar to the denied borrowers than to the group of approved borrowers, but only with respect to firm characteristics. For variables describing business development and firm–bank relationship, discouraged SMEs have less in common with credit-constrained firms than with their unconstrained counterparts. Even with a conservative prediction, about 60% of the discouraged firms would have obtained a bank loan if they had applied for one. The self-rationing mechanism observed is thus rather inefficient, and banks and policy makers should think about how to foster SMEs' courage to apply for the bank loans they need. Plain English Summary: For each SME that applied for credit and was rejected, six other firms had a financing need but did not apply. Some 60% of these discouraged firms would have obtained a loan if they had applied for one, even by a conservative prediction. A survey among 1922 Swiss SMEs on their access to bank loans shows that they are more often credit constrained than might be expected. The dominant reasons for being discouraged are too high collateral requirements, cumbersome application procedures, and the expectation of being turned down. We also find new evidence for the beneficial effect of a good firm–bank relationship. Banks and policy makers should consider how to foster SMEs' courage to apply for the bank loans they need in order to sustain or increase both their investments and their workforce. [ABSTRACT FROM AUTHOR]

Copyright of Revue Internationale PME is the property of Institue de Recherche sur les PME and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Using a unique sample of Italian manufacturing firms, we investigate the impact of relationship lending on firms' use of trade credit. We find that firms maintaining close and long-lasting relationships with their main banks are associated with higher amounts of trade credit extended by suppliers. This result is robust to alternative measures of trade credit and relationship lending, and to different estimation techniques. We also analyze the mechanisms driving the association between relationship lending and the use of trade credit. Regression results suggest that the positive link between accounts payable and relationship lending is especially significant for firms that use to provide soft information to their lenders and for companies with greater relational abilities. Plain English Summary The existence of close and long lasting lending relationships positively affects the amount of trade credit manufacturing firms receive from their suppliers. By relying on the Survey on Italian Manufacturing Firms, we show that the positive link between relationship lending and the use of trade credit is driven by two channels: private information and relational capital. In a policy perspective, our findings reveal a need for banking regulation and supervision to encompass banking business models in evaluating banks. The current approach might not be suitable for local banks investing in soft information acquisition and could weaken SMEs' chances to receive both bank financing and trade credit from suppliers. Moreover, from a managerial point of view, our results uncover the relevance of firms' ability to create strong relationships with banks, suppliers, and other companies that may help alleviating financial constraints. [ABSTRACT FROM AUTHOR]

This theoretical paper extends the pioneering articles on relationship lending (e.g., Sharpe. J Finance XLV(4): 1069-1087, 1990; Rajan. J Financ 47: 1367–1400, 1992; von Thadden. Financ Res Lett 1(1): 11–23, 2004) by examining relationship lending and hold-up problems in credit markets when borrowers are identical and banks are different. The results show that existing borrowers are informationally captured by good banks and yield profits to them, but new borrowers are unprofitable. In this market, short-term loan contracts and unsecured loans are optimal while loan commitments should not be used. Further, banks and borrowers have long-term relationships. This paper challenges the standard theories on product quality, reputation and experience goods by introducing scenarios in which good and bad banks can retain their existing borrowers. In the standard theories, consumers leave bad producers and search for good ones. [ABSTRACT FROM AUTHOR]

Using a model of a competitive credit market, we study a firm's choice between financing a production project using a transaction loan and a relationship loan. The project itself is characterized by uncertainty, with regards to both the amount and the timing of revenue. While the transaction lender enjoys a relatively lower cost of funds, the relationship lender's advantage lies in being able to make a relatively more informed decision about the continuation value of the project in the event that the firm misses its initial payment obligation. In this setting, we make two important findings. First, we document how the firm's optimal choice of loan type is dependent on both the liquidation value of the project and how accessible transaction credit is to distressed firms. Second, we investigate an opportunity for a lender to improve the quality of its lending relationship with the firm, and find that, under imperfect information, the lender may choose to decline certain welfare improving innovations. [ABSTRACT FROM AUTHOR]

Using confidential data at the bank–firm loan‐level, we provide direct evidence of the signaling role of trade credit in bank lending decisions. Especially for firms that are opaque in their relationship with banks, the findings reveal that trade credit ameliorates information asymmetries. We address the questions of whether and, if so, how the presence of trade credit affects banks' decisions to grant commercial loans. We base the analysis on a sample of small and medium‐sized enterprises to examine suppliers' informational advantage in screening activities in relation to relationship lending arguments. We provide evidence that supports the role of trade credit as a signaling instrument in lending decisions. More precisely, the analysis suggests that trade credit plays a signaling role, increasing the probability of obtaining a loan. Suppliers bearing credit risk lead banks to lend to firms. Thus, a bank receiving this signal is more likely to grant a loan even though abnormal payment delays are perceived as negative and function as friction during the lending process. This paper has two implications: Banks should use suppliers to signal a "good" type of borrower and for firms, sharing credit information could ameliorate the rationing problems arising in the context of credit asymmetries. [ABSTRACT FROM AUTHOR]

We examine the association between relationship lending and the likelihood of bank loan covenant violations. We find that relationship lending reduces the probability of ex‐post covenant violations. The length of the lending relationships has an inverted U‐shaped effect on the likelihood of covenant violations. The borrowers and lenders both benefit from relationship lending, but long‐term lending relationships weaken the borrower's bargaining power. [ABSTRACT FROM AUTHOR]

In this article we consider the effects of the inclusion of spatial dependence in the empirical model measuring small cooperative banks' risk performance. In the presence of cross‐sectional dependence, spatial analysis deals with co‐movement among geographical units, allowing for the evaluation of spillover effects and improving econometric models. The article makes several contributions to the literature. First, we support the hypothesis that the inclusion of spatial terms improves small bank soundness models. Second, with the Z Score used as a proxy for bank soundness, we indirectly test the impacts of relationship lending on small firms, which is a classic tool adopted by small banks to assess the creditworthiness of small firms. Third, since we control for banks' market power, we expand the literature on the relationship between bank risk and market competitive pressure. Finally, we find empirical evidence that bank size does affect the financial standing of small banks. [ABSTRACT FROM AUTHOR]

The link between relationship‐based lending and credit availability has been extensively studied in the banking sector. However, in the context of microfinance, academic evidence of the benefits of proximity‐based lending methodologies for borrowers is scarce. The existing literature stresses only the benefits for microlenders and the effect on loan repayment performance. Therefore, this study investigates whether proximity‐based lending—joint liability contracts (group lending) and relationship‐based lending (relationship intensity, multiple‐borrowing, and proximity)—improves credit availability and therefore curbs credit rationing. Since loans are processed by loan officers, the benefit of applying proximity screening tools likely depends on loan officer characteristics, especially gender. To achieve our objective, we use a unique loan‐level dataset of over 5500 loans approved between 2007 and 2012 by a Cameroonian greenfield microfinance institution and estimate a pooled OLS regression after controlling for borrowers' characteristics, year and industry fixed effects. The findings suggest that proximity‐based lending methodologies limit credit rationing especially by male loan officers, and that multi‐relationship borrowers tend to be more credit rationed. Our findings also suggest that both types of proximity‐based lending are complementary. Finally, our results are less sensitive to a change in the credit rationing measurement. [ABSTRACT FROM AUTHOR]

Credit unions (CUs) may respond to a financial shock differently than other types of banks because of their unique membership‐based governance structure. We exploit the financial crisis of 2008/09 as a negative shock to Brazilian banks and analyze the lending behavior of CUs in comparison to non‐CUs and the subsequent effects on the commercial clients' labor force. We find that during the financial crisis, CUs tightened their members' access to credit to a lesser extent (insurance effect) than did other bank types. Notably, the labor market impact of the insurance effect of CUs is positive for very small firms. [ABSTRACT FROM AUTHOR]

Using a worldwide database on entrepreneurship dynamics and non-structural measures of competition in banking markets, this paper provides robust international evidence on the macroeconomic impact of bank competition on new business creation. Previous research has shown that the stock market, due to its liquidity externalities, stimulates business creation by allowing and expediting the recycling of "informed capital" supplied to new start-ups by financial intermediaries. Building on the complementarity between banks and stock markets in the business creation process, the paper evaluates in a unifying framework the extent of two competing theories of bank competition effects on entrepreneurial financing. It is found that, in line with the market power hypothesis, bank competition has an overall beneficial impact on new business density by boosting credit access to new entrepreneurs. Yet, consistent with the information hypothesis, this result attenuates as the size of the stock market increases, due to the importance of relationship lending underlying the informed capital recycling. [ABSTRACT FROM AUTHOR]

Microfinance institutions (MFIs) play pivotal roles to providing financing and services to micro and small enterprises (MSEs) in Indonesia. Islamic MFIs, which follow Shariah principles in their operations, aim not only to provide financing, but also to improve the socioeconomic conditions of poor people. There is heightened interest in the factors influencing the development of MFIs, such as relationship lending. This study aims to explore the effectiveness of such lending and the uniqueness of the implementation of social purpose in Islamic MFIs. The paper adopts a quantitative methodology, using cross-sectional survey data from 1,001 microloan borrowers from five MFIs, three of which are Islamic MFIs which provided financing in 13 regions in Indonesia in 2018. The results show that Islamic MFIs do not differ in the implementation of relationship lending. Furthermore, there is a likelihood that they are able to be more focused on profit-oriented transactions ensuring sustainability, due to their unique characteristics, as they have Baitul Maal with the social instruments of zakat, infaq and sadaqa to provide social-oriented transactions to improve outreach to the poor. The study enhances our understanding and adds knowledge to the existing literature on Islamic MFIs, especially in Indonesia.

Copyright of Revue Economique is the property of Fondation Nationale des Sciences Politiques and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The main purpose of this article is to study the role of house banks in out-of-court reorganization. Banks are traditionally one of the most important financial resources for firms. Especially in financially difficult times like those we now face due to the coronavirus, it can make a difference whether a bank supports its clients and accompanies firms through a crisis or not. With the help of relationship lending theory, we review the existing literature on this topic. Next, based on empirical findings from Austrian banks, we derive implications for corporate practice. The empirical study covers a sample of 658 firm reorganizations in Austria. The data were collected anonymously by different banks processing the cases in their workout departments between January 2011 and December 2013. Correlation analysis and logistic regression were applied to analyze the data. The findings indicate that house banks, despite their relationship of trust, must be critical in their assessment of reorganization projects due to the danger of zombie lending. The four most important prerequisites for completing an out-of-court reorganization were a new loan, an open and proactive communication policy on the part of the distressed company, management changes, and a financial contribution from existing shareholders. The findings show that bank-supported out-of-court reorganization has a high probability of success. A recommendation to entrepreneurs is to respond rapidly to financial distress and maintain open communication with stakeholders, in particular banks. The findings indicate that the implementation of Directive (EU) 2019/1023 on preventive restructuring frameworks in the European Union is crucial to enable bank-led reorganizations. [ABSTRACT FROM AUTHOR]

Recent literature questions the relative advantage of community banks vs. non-community banks in small business funding. Using the Federal Deposit Insurance Corporation's definition of a community bank, the study re-examines the role of community banks in providing funding to small businesses using the Community Reinvestment Act (CRA) small business lending data over the period 2003 to 2016. The empirical results indicate that community banks are still providing 30 percent more small business funding than non-community banks, especially after the Great Recession. This role is even more important in those counties in non-metropolitan areas. In addition, the results indicate that in counties where community banks do not have offices, they provide 48 percent fewer loans compared to non-community banks in counties where they do not have offices, which suggests community banks still use physical offices to maintain their relationship lending advantage. Clearly, from a public policy standpoint, the results support the view that community banks are important because they continue to provide valuable services to small business firms throughout the country. [ABSTRACT FROM AUTHOR]

This paper focuses on the economic impact of the lender–borrower relationship on loan interest rates and tests whether repeated bank-firm contact significantly reduces these rates. We find strong evidence of the 'relationship intensity' hypothesis, and we detect a contribution of physical contact between banks and firms to loan pricing, controlling for the location where contact occurs. Finally, we report new evidence on the hold-up problem; in particular, we find that under certain circumstances, a closer relationship may alleviate extra borrowing costs. [ABSTRACT FROM AUTHOR]

Previous studies that have examined the impact of the 2008 financial crisis on syndicated loans have ignored potential differences between lending banks by explicitly or implicitly aggregating all lenders together and focusing on borrower characteristics. One must jointly consider both borrower and lender to fully understand the complex role of the syndicate during this period. We consider the identity of the lender, with a focus on five major US banks that failed and their five corresponding acquirers. Our results highlight the distinct roles of investment and commercial banks and facilitate an understanding of relationship and transactional‐based lending. [ABSTRACT FROM AUTHOR]

• Relationship borrowers are less likely to default before the pandemic. This effect persists during the pandemic, but it becomes around 60 % smaller. • Relationship borrowers of appliance finance default less during the pandemic than the ones of general-purpose cash loans. • Female relationship borrowers are less likely to default during the pandemic, plausibly because of the higher job uncertainty and the increase of informal jobs for Brazilian women during the COVID-19. We investigate the role of lending technologies in consumer credit defaults in Brazil before and during the COVID-19 pandemic. First, relationship borrowers are less likely to default than others before the pandemic. Second, this effect persists during the pandemic, but it becomes around 60 % smaller. Third, we document important heterogenous effects. Relationship borrowers of appliance finance default less during the pandemic than the ones of general-purpose cash loans. Finally, female relationship borrowers are less likely to default during the pandemic, plausibly because of the higher job uncertainty and the increase of informal jobs for Brazilian women during the COVID-19. [ABSTRACT FROM AUTHOR]