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Gregory F. Udell - One of the best experts on this subject based on the ideXlab platform.
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Loan Officers and Relationship Lending to SMEs
Journal of Financial Intermediation, 2012Co-Authors: Hirofumi Uchida, Gregory F. Udell, Nobuyoshi YamoriAbstract:Previous research suggests that loan officers may play a critical role in Relationship Lending by producing soft information about SMEs. For the first time, we analyze this hypothesis and find empirical evidence that indicates that loan officer activities are associated with bank production of soft information. We also find that loan officers at small banks produce more soft information than at large banks, but large banks appear to have the equivalent potential to underwrite Relationship loans. Nevertheless, large banks choose instead to focus their resources on transactions Lending.
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loan officers and Relationship Lending to smes
2008Co-Authors: Hirofumi Uchida, Gregory F. Udell, Nobuyoshi YamoriAbstract:Previous research suggests that loan officers play a critical role in Relationship Lending by producing soft information about SMEs. For the first time, we empirically confirm this hypothesis. We also examine whether the role of loan officers differs from small to large banks as predicted by Stein (2002). While we find that small banks produce more soft information, the capacity and manner in which loan officers produce soft information does not seem to differ between large and small banks. This suggests that, although large banks may produce more soft information, they likely tend to concentrate their resources on transactions Lending.
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loan officers and Relationship Lending
2006Co-Authors: Hirofumi Uchida, Nobuyoshi Yamori, Gregory F. UdellAbstract:Current theoretical and empirical research suggests that small banks have a comparative advantage in processing soft information and delivering Relationship Lending. The most comprehensive analysis of this view found using U.S. data that smaller SMEs borrow from smaller banks and smaller banks have stronger Relationships with their borrowers (Berger, Miller, Petersen, Rajan, and Stein 2005) (BMPRS). We employ essentially the same methodology as BMPRS on a unique Japanese data set but our findings are different in interesting ways. Like BMPRS we find that more opaque firms are more likely to borrow from small banks. Unlike BMPRS, however, our methodology allows us to attribute this to the ability of large banks to deliver financial statement Lending. Finally, quite unlike BMPRS we do not, on balance, find that small banks have stronger Relationships with their SMEs. We offer some speculation on potential explanations for these differences. One possibility is that the credit culture and deployment of SME Lending technologies differ in Japan from the U.S. However, we note that strong conclusions cannot be reached without more research.
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Loan Officers and Relationship Lending
SSRN Electronic Journal, 2006Co-Authors: Hirofumi Uchida, Nobuyoshi Yamori, Gregory F. UdellAbstract:Theoretical and empirical work suggests that commercial loan officers play a critical role in Relationship Lending by producing soft information about their SME borrowers. We test whether loan officers in the Japanese SME loan market perform this role in a manner that is consistent with the theoretical predictions in the Relationship Lending literature. While we find limited evidence that soft information may benefit SME borrowers, we do not find evidence that is on balance consistent with theoretical predictions that loan officers produce soft information that is not easily transmitted to others within the bank. These results are consistent with alternative explanations including the possibility that the social environment in Japan leads to a credit culture where it is easier to transmit soft information from one loan officer to another. It could also be consistent with the possibility that the Relationship Lending may not be particularly important in the Japanese SME loan market.
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small business credit availability and Relationship Lending the importance of bank organisational structure
The Economic Journal, 2002Co-Authors: Allen N Berger, Gregory F. UdellAbstract:This paper models the inner workings of Relationship Lending, the implications for bank organisational structure, and the effects of shocks to the economic environment on the availability of Relationship credit to small businesses. Relationship Lending depends on the accumulation over time by the loan officer of 'soft' information. Because the loan officer is the repository of this soft information, agency problems are created throughout the organisation that may best be resolved by structuring the bank as a small, closely-held organisation with few managerial layers. The shocks analysed include technological innovations, regulatory regime shifts, banking industry consolidation, and monetary policy shocks. The issue of credit availability to small firms has garnered world-wide concern recently. Models of equilibrium credit rationing that point to moral hazard and adverse selection problems (eg, Stiglitz and Weiss, 1981) suggest that small firms may be particularly vulnerable because they are often so informationally opaque. That is, the informational wedge between insiders and outsiders tends to be more acute for small companies, which makes the provision of external finance particularly challenging. Small firms with opportunities to invest in positive net present value projects may be blocked from doing so because potential providers of external finance cannot readily verify that the firm has access to a quality project (adverse selection problem) or ensure that the funds will not be diverted to fund an alternative project (moral hazard problem).
Valentina Sabato - One of the best experts on this subject based on the ideXlab platform.
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Relationship Lending and Firms’ Leverage: Empirical Evidence in Europe
European Financial Management, 2016Co-Authors: Roberto Guida, Valentina SabatoAbstract:Using a novel measure of Relationship Lending based on the kind of information banks use to assess borrowers, we investigate the role of Relationship Lending in firms’ capital structure. Using a unique dataset of European manufacturing firms, we measure Relationship Lending based on three dimensions (closeness, soft information, exclusivity) and relate them to firms’ leverage. Overall our results support the hypothesis that supply factors matter. We find that the actual use of soft information increases leverage and only firms without soft information†intensive Relationships increase their leverage through multiple Relationships. However, the effect of Relationship Lending on leverage varies across countries.
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Relationship Lending and innovation empirical evidence on a sample of european firms
Economics of Innovation and New Technology, 2016Co-Authors: Stefania Cosci, Valentina Meliciani, Valentina SabatoAbstract:ABSTRACTThis paper investigates the impact of Relationship Lending on innovation (the probability to innovate and the intensity of innovation). Using a unique dataset providing detailed information on bank–firm Relationships across European firms, we relate different proxies of Relationship Lending (soft information, long-lasting Relationships, number of banks and share of the main bank) to innovation. We find a very strong and robust positive effect of ‘soft-information-intensive’ Relationships, a less robust positive effect of long-lasting Relationships and a negative effect of credit concentration as measured by the number of banking Relationships. We also find that ‘soft-information-intensive’ Relationships reduce credit rationing for innovative firms, while long-lasting Relationships seem to favour innovation via other relational channels. These results raise some concern on the impact of screening processes based on automatic procedures, as those suggested by the Basel rules, on firms' capability to...
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Relationship Lending and innovation: empirical evidence on a sample of European firms
Economics of Innovation and New Technology, 2015Co-Authors: Stefania Cosci, Valentina Meliciani, Valentina SabatoAbstract:This paper investigates the impact of Relationship Lending on innovation (the probability to innovate and the intensity of innovation). Using a unique dataset providing detailed information on bank--firm Relationships across European firms, we relate different proxies of Relationship Lending (soft information, long-lasting Relationships, number of banks and share of the main bank) to innovation. We find a very strong and robust positive effect of ‘soft-information-intensive’ Relationships, a less robust positive effect of long-lasting Relationships and a negative effect of credit concentration as measured by the number of banking Relationships. We also find that ‘soft-information-intensive’ Relationships reduce credit rationing for innovative firms, while long-lasting Relationships seem to favour innovation via other relational channels. These results raise some concern on the impact of screening processes based on automatic procedures, as those suggested by the Basel rules, on firms' capability to finance innovative activities in Europe.
Lars Norden - One of the best experts on this subject based on the ideXlab platform.
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The Benefits of Relationship Lending in a Cross-Country Context: A Meta-Analysis
Management Science, 2015Co-Authors: Vlado Kysucky, Lars NordenAbstract:Relationship Lending may create benefits for borrowers by reducing information asymmetries. However, empirical evidence is mixed. We conduct a meta-analysis to summarize and explain the heterogeneity in the results in the literature using hand-collected information from 101 studies in the United States, Europe, Asia, and Latin America from 1970 to 2010. We find that strong Relationships are generally beneficial for borrowers, but Lending outcomes differ across the Relationships’ dimensions. Long-lasting, exclusive, and synergy-creating bank Relationships are associated with higher credit volume and lower loan rates. These benefits are more likely in the United States and in countries where bank competition is high. They are not related to the importance of small and medium-sized enterprises in an economy, suggesting that prevalence of Relationship Lending does not necessarily come along with borrower benefits. Our inferences are robust when we control for observed systematic heterogeneity in the original studies and hold in a bootstrapping analysis.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.2088 . This paper was accepted by Wei Jiang, finance .
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the benefits of Relationship Lending in a cross country context a meta analysis
Management Science, 2015Co-Authors: Vlado Kysucky, Lars NordenAbstract:Relationship Lending may create benefits for borrowers by reducing information asymmetries. However, empirical evidence is mixed. We conduct a meta-analysis to summarize and explain the heterogeneity in the results in the literature using hand-collected information from 101 studies in the United States, Europe, Asia, and Latin America from 1970 to 2010. We find that strong Relationships are generally beneficial for borrowers, but Lending outcomes differ across the Relationships’ dimensions. Long-lasting, exclusive, and synergy-creating bank Relationships are associated with higher credit volume and lower loan rates. These benefits are more likely in the United States and in countries where bank competition is high. They are not related to the importance of small and medium-sized enterprises in an economy, suggesting that prevalence of Relationship Lending does not necessarily come along with borrower benefits. Our inferences are robust when we control for observed systematic heterogeneity in the original ...
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the benefits of Relationship Lending in a cross country context a meta analysis
2014Co-Authors: Vlado Kysucky, Lars NordenAbstract:Relationship Lending helps reduce asymmetric information, which potentially creates benefits for borrowers. However, empirical evidence is mixed. We conduct a meta-analysis to summarize and explain the heterogeneity in the results in the literature using hand-collected information from 101 studies in the United States., Europe, Asia and Latin America from 1970-2010. We find that strong Relationships are generally beneficial for borrowers but Lending outcomes differ across the Relationships’ dimensions. Long-lasting, exclusive and synergy-creating bank Relationships are associated with higher credit volume and lower loan rates. These benefits are more likely in the US and in countries where bank competition is high. They are not related to the importance of SMEs in an economy, suggesting that a higher prevalence of Relationship Lending does not necessarily come along with higher benefits for borrowers.
Allen N Berger - One of the best experts on this subject based on the ideXlab platform.
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small business credit availability and Relationship Lending the importance of bank organisational structure
The Economic Journal, 2002Co-Authors: Allen N Berger, Gregory F. UdellAbstract:This paper models the inner workings of Relationship Lending, the implications for bank organisational structure, and the effects of shocks to the economic environment on the availability of Relationship credit to small businesses. Relationship Lending depends on the accumulation over time by the loan officer of 'soft' information. Because the loan officer is the repository of this soft information, agency problems are created throughout the organisation that may best be resolved by structuring the bank as a small, closely-held organisation with few managerial layers. The shocks analysed include technological innovations, regulatory regime shifts, banking industry consolidation, and monetary policy shocks. The issue of credit availability to small firms has garnered world-wide concern recently. Models of equilibrium credit rationing that point to moral hazard and adverse selection problems (eg, Stiglitz and Weiss, 1981) suggest that small firms may be particularly vulnerable because they are often so informationally opaque. That is, the informational wedge between insiders and outsiders tends to be more acute for small companies, which makes the provision of external finance particularly challenging. Small firms with opportunities to invest in positive net present value projects may be blocked from doing so because potential providers of external finance cannot readily verify that the firm has access to a quality project (adverse selection problem) or ensure that the funds will not be diverted to fund an alternative project (moral hazard problem).
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Small business credit availability and Relationship Lending: the importance of bank organizational structure
Finance and Economics Discussion Series, 2001Co-Authors: Allen N Berger, Gregory F. UdellAbstract:This paper models the inner workings of Relationship Lending, the implications for bank organizational structure, and the effects of shocks to the economic environment on the availability of Relationship credit to small businesses. Relationship Lending depends on the accumulation over time by the loan officer of "soft" information. Because the loan officer is the repository of this soft information, agency problems are created throughout the organization that are best resolved by structuring the bank as a small, closely-held organization with few managerial layers. The shocks analyzed include technological innovations, regulatory regime shifts, banking industry consolidation, and monetary policy shocks.
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Lines of Credit and Relationship Lending in Small Firm Finance
SSRN Electronic Journal, 1998Co-Authors: Allen N Berger, Gregory F. UdellAbstract:This paper examines the role of Relationship Lending using a data set on small firm finance. We specifically examine price and nonprice terms of commercial bank lines of credit (L/C) extended to small firms. Our focus on bank L/Cs allows us to examine a type of loan contract where the bank-borrower Relationship is likely to be an important mechanism for solving asymmetric information problems associated with financing small enterprises. We find that borrowers with longer banking Relationships tend to pay lower interest rates and are less likely to pledge collateral. These results are consistent with theoretical arguments that Relationship Lending generates valuable information about borrower quality.
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Relationship Lending and lines of credit in small firm finance
The Journal of Business, 1995Co-Authors: Allen N Berger, Gregory F. UdellAbstract:This article examines the role of Relationship Lending in small firm finance. It examines price and nonprice terms of bank lines of credit extended to small firms. The focus on bank lines of credit allows the examination of a type of loan contract in which the bank-borrower Relationship is likely to be an important mechanism for solving the asymmetric information problems associated with financing small enterprises. The authors find that borrowers with longer banking Relationships pay lower interest rates and are less likely to pledge collateral. These results are consistent with theoretical arguments that Relationship Lending generates valuable information about borrower quality. Copyright 1995 by University of Chicago Press.
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Relationship Lending and lines of credit in small firm finance
1994Co-Authors: Allen N Berger, Gregory F. UdellAbstract:This paper examines the role of Relationship Lending in small firm finance. We examine price and nonprice terms of bank lines of credit (L/C) extended to small firms. Our focus on bank L/Cs allows us toe examine a type of loan contract in which the bank-borrower Relationship is likely to be an important mechanism for solving asymmetric information problems associated with financing small enterprises. We find that borrowers with longer banking Relationships pay lower interest rates and are less likely to pledge collateral. These results are consistent with theoretical arguments that Relationship Lending generates valuable information about borrower quality.
Vlado Kysucky - One of the best experts on this subject based on the ideXlab platform.
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Credit Market Concentration, Relationship Lending and the Cost of Debt
International Review of Financial Analysis, 2016Co-Authors: Stefano Bonini, Alberto Dell'acqua, Matteo Fungo, Vlado KysuckyAbstract:We investigate how the banking industry concentration and the strength of credit Relationships (Relationship Lending) jointly affect the cost of borrowing of firms. Our results indicate that Relationship Lending is not associated with the rent extraction mechanism deriving from informational lock-in. Conversely, market concentration appears to be associated with firms' higher cost of funding. But the effect is fully compensated if the Relationship between the firm and the bank is long and comprehensive. Controlling for a number of covariates and for endogeneity concerns leaves results unchanged. Our results shed some new light on the unclear effects documented by Kysucky and Norden (2016) of Relationship Lending on the cost of financing.
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the benefits of Relationship Lending in a cross country context a meta analysis
Management Science, 2015Co-Authors: Vlado Kysucky, Lars NordenAbstract:Relationship Lending may create benefits for borrowers by reducing information asymmetries. However, empirical evidence is mixed. We conduct a meta-analysis to summarize and explain the heterogeneity in the results in the literature using hand-collected information from 101 studies in the United States, Europe, Asia, and Latin America from 1970 to 2010. We find that strong Relationships are generally beneficial for borrowers, but Lending outcomes differ across the Relationships’ dimensions. Long-lasting, exclusive, and synergy-creating bank Relationships are associated with higher credit volume and lower loan rates. These benefits are more likely in the United States and in countries where bank competition is high. They are not related to the importance of small and medium-sized enterprises in an economy, suggesting that prevalence of Relationship Lending does not necessarily come along with borrower benefits. Our inferences are robust when we control for observed systematic heterogeneity in the original ...
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The Benefits of Relationship Lending in a Cross-Country Context: A Meta-Analysis
Management Science, 2015Co-Authors: Vlado Kysucky, Lars NordenAbstract:Relationship Lending may create benefits for borrowers by reducing information asymmetries. However, empirical evidence is mixed. We conduct a meta-analysis to summarize and explain the heterogeneity in the results in the literature using hand-collected information from 101 studies in the United States, Europe, Asia, and Latin America from 1970 to 2010. We find that strong Relationships are generally beneficial for borrowers, but Lending outcomes differ across the Relationships’ dimensions. Long-lasting, exclusive, and synergy-creating bank Relationships are associated with higher credit volume and lower loan rates. These benefits are more likely in the United States and in countries where bank competition is high. They are not related to the importance of small and medium-sized enterprises in an economy, suggesting that prevalence of Relationship Lending does not necessarily come along with borrower benefits. Our inferences are robust when we control for observed systematic heterogeneity in the original studies and hold in a bootstrapping analysis.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.2088 . This paper was accepted by Wei Jiang, finance .
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the benefits of Relationship Lending in a cross country context a meta analysis
2014Co-Authors: Vlado Kysucky, Lars NordenAbstract:Relationship Lending helps reduce asymmetric information, which potentially creates benefits for borrowers. However, empirical evidence is mixed. We conduct a meta-analysis to summarize and explain the heterogeneity in the results in the literature using hand-collected information from 101 studies in the United States., Europe, Asia and Latin America from 1970-2010. We find that strong Relationships are generally beneficial for borrowers but Lending outcomes differ across the Relationships’ dimensions. Long-lasting, exclusive and synergy-creating bank Relationships are associated with higher credit volume and lower loan rates. These benefits are more likely in the US and in countries where bank competition is high. They are not related to the importance of SMEs in an economy, suggesting that a higher prevalence of Relationship Lending does not necessarily come along with higher benefits for borrowers.