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Long Run Relationships in Banking

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  • Srinivasan, Anand

Abstract

This monograph surveys the effects of long-run relationships in banking between corporate borrowers and lenders. The first part of the survey analyzes econometric issues in the measurement of the costs and benefits of such relationships. In particular, we analyze potential issues with commonly used proxies of relationship lending — duration, scope and intensity. This analysis, as well as studies that have access to internal bank records, suggest that intensity (fraction of the total lending of a borrower by a given bank) would be a better measure of relationship lending, relative to duration. This analysis also suggests that accounting for endogeneity of relationships and simultaneity of loan contract terms does not qualitatively impact the results of earlier literature. Papers with the ability to circumvent several of the econometric issues are discussed in detail. The second part of this monograph is similar to a standard review where papers relating to hold-up costs, multiple banking relationships, impact of competition on relationship banking, and measurement of soft information in banking are covered.

Suggested Citation

  • Srinivasan, Anand, 2014. "Long Run Relationships in Banking," Foundations and Trends(R) in Finance, now publishers, vol. 8(2), pages 55-143, October.
    • Handle: RePEc:now:fntfin:0500000041
    DOI: 10.1561/0500000041
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    Citations

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    Cited by:

    1. Olivier Darmouni, 2020. "Informational Frictions and the Credit Crunch," Journal of Finance, American Finance Association, vol. 75(4), pages 2055-2094, August.
    2. Sutherland, Andrew, 2018. "Does credit reporting lead to a decline in relationship lending? Evidence from information sharing technology," Journal of Accounting and Economics, Elsevier, vol. 66(1), pages 123-141.
    3. Vidhan K. Goyal & S. Lakshmi Naaraayanan & Anand Srinivasan, 2019. "Banking Relationships and Creditor Rights," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 9(04), pages 1-29, December.
    4. Papoutsi, Melina, 2021. "Lending relationships in loan renegotiation: evidence from corporate loans," Working Paper Series 2553, European Central Bank.
    5. Cuciniello, Vincenzo, 2024. "Credit allocation to businesses in Italy amid the Covid-19 crisis," Economics Letters, Elsevier, vol. 238(C).
    6. Panagiotis Avramidis & Ioannis Asimakopoulos & Dimitris Malliaropulos, 2021. "Disrupted lending relationship and borrower's strategic default: evidence from the tourism industry during the Greek economic crisis," Working Papers 285, Bank of Greece.

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