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The Effect of Relationship Lending on Frim Performance

Author

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  • Judit Montoriol Garriga

    (Universitat Autònoma de Barcelona.)

Abstract

We examine how relationship lending affects firm performance using a panel dataset of about 70,000 small and medium Spanish firms in the period 1993-2004. We model firm performance jointly with the firm's choice of the number of bank relationships. Controlling for firm fixed effects and using instrumental variables for the decision on the number of bank relationships, we find that firms maintaining exclusive bank relationships have lower profitability. The result is consistent with the view that banks appropriate most of the value generated through close relationships with its borrowers as long as they do not face competition from other lenders.

Suggested Citation

  • Judit Montoriol Garriga, 2006. "The Effect of Relationship Lending on Frim Performance," Working Papers 0605, Departament Empresa, Universitat Autònoma de Barcelona, revised Jun 2006.
    • Handle: RePEc:bbe:wpaper:0605
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    References listed on IDEAS

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    Cited by:

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    3. Tseng-Chung Tang, 2008. "An analysis of bank stock price reaction to distressed borrowers: Taiwanese evidence," The Service Industries Journal, Taylor & Francis Journals, vol. 30(7), pages 1159-1176, June.

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