IDEAS home Printed from https://ideas.repec.org/a/eee/jbrese/v68y2015i7p1650-1652.html
   My bibliography  Save this article

Information acquisition in SME's relationship lending and the cost of loans

Author

Listed:
  • Comeig, Irene
  • Fernández-Blanco, Matilde O.
  • Ramírez, Federico

Abstract

This study analyzes the effect of the reputation SMEs get in a relationship lending on the cost of next loans. A unique dataset of 734 Spanish SMEs' relationship lending provides information on a loan-by-loan basis about the ex post previous loan performance, which measures reputation. No prior empirical research differentiates the cost of loans following a defaulted loan from the costs of those following a successfully repaid loan. Results show that lenders obtain information about borrowers' risk-level during relationship lending and use this information. Loans granted after a successful one pledge significantly lower collateral and interest rate than loans granted after a defaulted one. However, the pledged collateral is stronger in the second loan not only following a defaulted loan but also following a successfully repaid one. This result is consistent with the credit screening mechanism, in which good borrowers differentiate themselves from bad ones by pledging high collateral to get lower interest rates.

Suggested Citation

  • Comeig, Irene & Fernández-Blanco, Matilde O. & Ramírez, Federico, 2015. "Information acquisition in SME's relationship lending and the cost of loans," Journal of Business Research, Elsevier, vol. 68(7), pages 1650-1652.
    • Handle: RePEc:eee:jbrese:v:68:y:2015:i:7:p:1650-1652
    DOI: 10.1016/j.jbusres.2015.02.012
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0148296315000843
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jbusres.2015.02.012?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lehmann, Erik & Neuberger, Doris, 2001. "Do lending relationships matter?: Evidence from bank survey data in Germany," Journal of Economic Behavior & Organization, Elsevier, vol. 45(4), pages 339-359, August.
    2. Degryse, Hans & Van Cayseele, Patrick, 2000. "Relationship Lending within a Bank-Based System: Evidence from European Small Business Data," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 90-109, January.
    3. Harhoff, Dietmar & Korting, Timm, 1998. "Lending relationships in Germany - Empirical evidence from survey data," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1317-1353, October.
    4. Zambaldi, Felipe & Aranha, Francisco & Lopes, Hedibert & Politi, Ricardo, 2011. "Credit granting to small firms: A Brazilian case," Journal of Business Research, Elsevier, vol. 64(3), pages 309-315, March.
    5. Machauer, Achim & Weber, Martin, 1998. "Bank behavior based on internal credit ratings of borrowers," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1355-1383, October.
    6. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-381, July.
    7. Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-855, September.
    8. Harhoff, Dietmar & Körting, Timm, 1998. "Lending Relationships in Germany: Empirical Results from Survey Data," CEPR Discussion Papers 1917, C.E.P.R. Discussion Papers.
    9. Bigelli, Marco & Martín-Ugedo, Juan Francisco & Sánchez-Vidal, F. Javier, 2014. "Financial conservatism of private firms," Journal of Business Research, Elsevier, vol. 67(11), pages 2419-2427.
    10. Ginés Hernández-Cánovas & Pedro Martínez-Solano, 2010. "Relationship lending and SME financing in the continental European bank-based system," Small Business Economics, Springer, vol. 34(4), pages 465-482, May.
    11. Boot, Arnoud W A & Thakor, Anjan V, 1994. "Moral Hazard and Secured Lending in an Infinitely Repeated Credit Market Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 899-920, November.
    12. C. Mónica Capra & Irene Comeig & Matilde O. Fernández-Blanco, 2014. "Entrepreneurship and Credit Rationing: How to Screen Successful Projects in this Current Crisis Period," Springer Books, in: Klaus Rüdiger & Marta Peris Ortiz & Alicia Blanco González (ed.), Entrepreneurship, Innovation and Economic Crisis, edition 127, chapter 0, pages 139-147, Springer.
    13. Townsend, Robert M, 1982. "Optimal Multiperiod Contracts and the Gain from Enduring Relationships under Private Information," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1166-1186, December.
    14. Angelini, P. & Di Salvo, R. & Ferri, G., 1998. "Availability and cost of credit for small businesses: Customer relationships and credit cooperatives," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 925-954, August.
    15. Petersen, Mitchell A & Rajan, Raghuram G, 1994. "The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fangjun Wang & Luying Xu & Fei Guo & Junrui Zhang, 2020. "Loan Guarantees, Corporate Social Responsibility Disclosure and Audit Fees: Evidence from China," Journal of Business Ethics, Springer, vol. 166(2), pages 293-309, October.
    2. Vasile DEDU & Dan Costin NIŢESCU & Ciprian Sebastian TURCAN, 2019. "SMEs’ Access to Finance: An European Perspective," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 114-127, March.
    3. Rahman Ashiqur & Rahman M. Twyeafur & Belas Jaroslav, 2017. "Determinants of SME Finance: Evidence from Three Central European Countries," Review of Economic Perspectives, Sciendo, vol. 17(3), pages 263-285, September.
    4. Adomako, Samuel & Ahsan, Mujtaba, 2022. "Entrepreneurial passion and SMEs’ performance: Moderating effects of financial resource availability and resource flexibility," Journal of Business Research, Elsevier, vol. 144(C), pages 122-135.
    5. Brown, Ross & Lee, Neil, 2019. "Strapped for cash? Funding for UK high growth SMEs since the global financial crisis," Journal of Business Research, Elsevier, vol. 99(C), pages 37-45.
    6. Yuting Li & Tong Chen & Baogui Xin, 2016. "Optimal Financing Decisions of Two Cash-Constrained Supply Chains with Complementary Products," Sustainability, MDPI, vol. 8(5), pages 1-17, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brick, Ivan E. & Palia, Darius, 2007. "Evidence of jointness in the terms of relationship lending," Journal of Financial Intermediation, Elsevier, vol. 16(3), pages 452-476, July.
    2. Menkhoff, Lukas & Neuberger, Doris & Suwanaporn, Chodechai, 2006. "Collateral-based lending in emerging markets: Evidence from Thailand," Journal of Banking & Finance, Elsevier, vol. 30(1), pages 1-21, January.
    3. Doris Neuberger & Solvig Räthke-Döppner, 2015. "The role of demographics in small business loan pricing," Small Business Economics, Springer, vol. 44(2), pages 411-424, February.
    4. Ginés Hernández-Cánovas & Pedro Martínez-Solano, 2010. "Relationship lending and SME financing in the continental European bank-based system," Small Business Economics, Springer, vol. 34(4), pages 465-482, May.
    5. Berger, Allen N. & Scott Frame, W. & Ioannidou, Vasso, 2011. "Tests of ex ante versus ex post theories of collateral using private and public information," Journal of Financial Economics, Elsevier, vol. 100(1), pages 85-97, April.
    6. Simon Cornée, 2014. "Soft Information and Default Prediction in Cooperative and Social Banks," Journal of Entrepreneurial and Organizational Diversity, European Research Institute on Cooperative and Social Enterprises, vol. 3(1), pages 89-103, June.
    7. Kislat, Carmen & Menkhoff, Lukas & Neuberger, Doris, 2013. "The use of collateral in formal and informal lending," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79765, Verein für Socialpolitik / German Economic Association.
    8. Ginés Hernández-Cánovas & Pedro Martínez-Solano, 2007. "Effect of the Number of Banking Relationships on Credit Availability: Evidence from Panel Data of Spanish Small Firms," Small Business Economics, Springer, vol. 28(1), pages 37-53, January.
    9. Bellucci, Andrea & Borisov, Alexander & Zazzaro, Alberto, 2013. "Do banks price discriminate spatially? Evidence from small business lending in local credit markets," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4183-4197.
    10. Berger, Allen N. & Espinosa-Vega, Marco A. & Frame, W. Scott & Miller, Nathan H., 2011. "Why do borrowers pledge collateral? New empirical evidence on the role of asymmetric information," Journal of Financial Intermediation, Elsevier, vol. 20(1), pages 55-70, January.
    11. Tensie Steijvers & Wim Voordeckers, 2009. "Collateral And Credit Rationing: A Review Of Recent Empirical Studies As A Guide For Future Research," Journal of Economic Surveys, Wiley Blackwell, vol. 23(5), pages 924-946, December.
    12. Chala, Alemu Tulu & Forssbaeck, Jens, 2018. "Does Collateral Reduce Loan-Size Credit Rationing? Survey Evidence," Working Papers 2018:36, Lund University, Department of Economics.
    13. Loukil Sahar & Jarboui Anis, 2016. "Loan officers and soft information production," Cogent Business & Management, Taylor & Francis Journals, vol. 3(1), pages 1199521-119, December.
    14. Aitziber Olasolo, 2021. "Credit Risk Elements for Small and Medium-Sized Enterprises: The Case of Spain," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(2), pages 192-219.
    15. Lin, Huidan, 2011. "Foreign bank entry and firms' access to bank credit: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 1000-1010, April.
    16. Giovanni Ferri & Doris Neuberger, 2014. "The Banking Regulatory Bubble and How to Get out of It," Rivista di Politica Economica, SIPI Spa, issue 2, pages 39-69, April-Jun.
    17. Ginés Hernández Cánovas & Pedro Martínez Solano, 2003. "Relaciones Bancarias Y Sus Efectos Sobre Los Términos De La Deuda En Las Pymes," Working Papers. Serie EC 2003-07, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    18. Hernán Ortiz-Molina & María Penas, 2008. "Lending to small businesses: the role of loan maturity in addressing information problems," Small Business Economics, Springer, vol. 30(4), pages 361-383, April.
    19. Massimiliano Affinito & Fabiana Sabatini & Massimiliano Stacchini, 2021. "Collateral in bank lending during the financial crises:a borrower and a lender story," Temi di discussione (Economic working papers) 1352, Bank of Italy, Economic Research and International Relations Area.
    20. Tensie Steijvers & Wim Voordeckers & Koen Vanhoof, 2010. "Collateral, relationship lending and family firms," Small Business Economics, Springer, vol. 34(3), pages 243-259, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbrese:v:68:y:2015:i:7:p:1650-1652. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbusres .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.