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The Hold-up Problem and Banking Relationships: Evidence from the Polish SME Sector

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  • Marcin Grzelak

Abstract

This paper investigates how lender-borrower relationships affect credit cost for small and medium sized companies (SMEs). We use data within the period 2006-2015 for the Polish SME sector and deploy panel regression models to analyse how the number and length of banking relationships influence the financial costs of a random sample of Polish SMEs. We document that the price of capital decreases as relationships progress. Outcomes of the research are thus inconsistent with the "hold-up" hypothesis. Moreover, we find evidence that supports the view that multiple banking relationships generate more financial benefits for companies than a relationship with one lender.

Suggested Citation

  • Marcin Grzelak, 2019. "The Hold-up Problem and Banking Relationships: Evidence from the Polish SME Sector," Prague Economic Papers, Prague University of Economics and Business, vol. 2019(6), pages 670-687.
    • Handle: RePEc:prg:jnlpep:v:2019:y:2019:i:6:id:727:p:670-687
    DOI: 10.18267/j.pep.727
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    More about this item

    Keywords

    banking relationship; hold-up problem; information asymmetry; bank lending;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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