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An Empirical Study on the Effects of Bank-Firm Relationship on Small Firm Borrowings (in Korean)

Author

Listed:
  • Jung-Jin Lee

    (Department of Business Administration, Sogang University)

  • Soo-Young Hwang

    (IBK Economic Research Institute)

Abstract

This study investigates how the bank-firm relationship affects the loaning costs for small firms in Korea. Empirical results show that the stronger is the bank-firm relationship, the lower the interest rates for the loan, implying the existence of benefits from bank-firm relationship. We also find that the effects of relationship depend on competition, information transparency, and distance, that is, the benefits from relationship banking are found more strongly when the credit market competition is weaker, the borrower-lender distance is shorter, and the information transparency is lower. One of policy implications is that the financing of small firms can be improved by lowering the information collecting costs on the part of the banks.

Suggested Citation

  • Jung-Jin Lee & Soo-Young Hwang, 2013. "An Empirical Study on the Effects of Bank-Firm Relationship on Small Firm Borrowings (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 19(1), pages 77-105, March.
    • Handle: RePEc:bok:journl:v:19:y:2013:i:1:p:77-105
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    More about this item

    Keywords

    bank-firm relationship; relationship banking; credit market competition; information transparency; borrower-lender distance;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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