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When Arm?s Length Is Too Far. Relationship Banking over the Business Cycle

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  • Degryse, Hans
  • De Haas, Ralph
  • Beck, Thorsten
  • van Horen, Neeltje

Abstract

Using a novel way to identify relationship and transaction banks, we study how banks? lending techniques affect funding to SMEs over the business cycle. For 21 countries we link the lending techniques that banks use in the direct vicinity of firms to these firms? credit constraints at two contrasting points of the business cycle. We show that relationship lending alleviates credit constraints during a cyclical downturn but not during a boom period. The positive impact of relationship lending in an economic downturn is strongest for smaller and more opaque firms and in regions where the downturn is more severe.

Suggested Citation

  • Degryse, Hans & De Haas, Ralph & Beck, Thorsten & van Horen, Neeltje, 2014. "When Arm?s Length Is Too Far. Relationship Banking over the Business Cycle," CEPR Discussion Papers 10050, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:10050
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    More about this item

    Keywords

    Relationship banking; Credit constraints; Business cycle;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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