The Benefits of Lending Relationships: Evidence from Small Business Data

This paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm. We analyze data collected in a survey of small firms by the Small Business Administration. The primary benefit of building close ties with an institutional creditor is that the availability of financing increases. We find smaller effects on the price of credit. Attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit. In sum, relationships are valuable and appear to operate more through quantities rather than prices.     

The Information Revolution and Small Business Lending: The Missing Evidence

This paper provides empirical confirmation for Petersen and Rajan??s (J Finance 57:2533?C2570, 2002) widely accepted conjecture that information technology was the primary driver of the observed increase in small business borrower-lender distances in the U.S. in recent years. Using a different data source for small business loans, we show that annual increases in borrower-lender distances were slow and steady prior to 1993 (the end point in Petersen and Rajan??s data) but accelerated rapidly after that. Importantly, we are able to assign at least half of this acceleration to the adoption of credit scoring technologies by the lending banks. Our tests also reveal strong statistical associations between lending distances and borrower characteristics, lender characteristics, market conditions, regulatory constraints, moral hazard incentives, and principal-agent incentives.     

Credit Unions and Small Business Lending

Among the issues raised by consolidation within the banking industry is a concern that small businesses will be less able to obtain credit as community banks are acquired by larger or non-local institutions. Community banks have traditionally been a major source of funding for small businesses. The impact of bank consolidation on credit availability may depend in part on whether the remaining community institutions expand their small business lending activities. This study examines whether credit unions have a propensity to extend business loans in markets that have experienced bank merger and acquisition activity. We find some evidence that credit unions are more likely to engage in business lending in markets characterized by greater bank merger and acquisition activity. Moreover, the estimated economic significance is meaningful in many of the specifications.

Information from Relationship Lending: Evidence from Loan Defaults in China

Using a proprietary database from a large Chinese state‐owned bank, we examine whether information evolved from banking relationships predicts commercial loan default by industrial firms. We find that the bank's relationship information is significantly linked to the incidence of default, and that its contribution to prediction accuracy is larger than any hard information. Furthermore, the effect of relationship information is stronger among firms that have a more sustained banking relationship. Our findings indicate that, at least in the emerging markets, a bank's relationship information still matters for large firms, despite the fact that hard information for such firms is abundant.     

The Benefits of Relationship Banking: Evidence from Small Business Financing in Finland

Using unique small business credit-file data from a major Finnish bank, I analyze how relationship characteristics are associated with loan interest rates. Data includes the effective loan rate and variables that describe the duration and scope of relationship, collateralization, firm characteristics, bank’s internal risk rating, and loan characteristics. The results show that longer duration tends to lower the cost of credit and that a long-term bank/firm relationship is beneficial especially to high-risk firms. As the relationship matures, the loan premiums for high-risk firms decrease at higher rate than for low-risk firms.     

Changes in Non-Local Lending to Small Business

In this paper, I use recently collected Community Reinvestment Act loan data to examine how small business lending in local geographic areas (defined as markets) by lenders not physically located in those areas changed between 1996 and 2001. The results show that the importance of outside lending increased substantially over this period when measured in terms of the number of loans rather than the dollar volume of loans. The levels and rates of growth in out-of-market lending are more modest if the share of out-of-market lending is expressed in dollar volumes and almost insubstantial if organizations that engage in substantial credit card lending are excluded as out-of-market lenders. Using a fixed-effects model and an extensive panel data set, I find that the share of outside lending into local geographic markets is positively associated with local market concentration and the average wage of tellers in the market, consistent with the hypothesis that outside loans are to some degree substitutes for in-market loans.     

法国金融制度:由非典型的银行主导型向市场主导型演进

本文首先从量性分析角度通过对近二三十年来法国非金融企业融资结构和美国、英国、德国与日本的比较,发现了其演变趋势和特征,然后结合对企业同银行与金融市场的关系变化的质性研究,展示了法国金融制度从非典型的银行主导型向市场主导型演进的趋势和脉络,并试图探索这种正在进行的渐进式金融制度变迁的原因。     

Relationship and Transaction Lending: New Evidence and Perspectives

In this article, I try to answer three questions: (1) How do relationship lending and transaction lending vary over the cycle? (2) How do economic systems that are more “bank oriented” perform compared to “market-oriented” systems? (3) What are the consequences on relationship banking of the recent structural bank regulation reforms adopted to separate specific investment and commercial banking activities? Building on some recent evidence, the main conclusions are as follows: (1) Relationship banks protect their clients in normal downturns; (2) when recessions coincide with a financial crisis, countries that rely relatively more on bank financing tend to be more severely hit; (3) the effects of structural bank regulation initiatives on relationship banking are uncertain.     

Lock‐In Effects in Relationship Lending: Evidence from DIP Loans

Do prior lending relationships result in pass‐through savings (lower interest rates) for borrowers, or do they lock in higher costs for borrowers? Theoretical models suggest that when borrowers experience greater information asymmetry, higher switching costs, and limited access to capital markets, they become locked into higher costs from their existing lenders. Firms in Chapter 11 seeking debtor‐in‐possession (DIP) financing often fit this profile. We investigate the presence of lock‐in effects using a sample of 348 DIP loans. We account for endogeneity using the instrument variable (IV) approach and the Heckman selection model and find consistent evidence that prior lending relationship is associated with higher interest costs and the effect is more severe for stronger existing relationships. Our study provides direct evidence that prior lending relationships do create a lock‐in effect under certain circumstances, such as DIP financing.     

Small Business Equity Returns: Empirical Evidence from the Business Credit Card Securitization Market

We present a new approach for estimating small business equity returns. This approach applies the Merton (1974) credit model to the returns on entrepreneurial business credit card debt securitizations and solves for the implied equity returns for the small businesses owned by the cardholders. The estimated small business equity premium is 10.74%. The standard deviation of small business equity returns is 56.37%. We validate the methodology by applying it to investment-grade corporate bonds and recovering a public equity premium of 6.17%.     

Small Banks, Small Business, and Relationships: An Empirical Study of Lending to Small Farms

We examine small banks lending to small farms. We find that relationships, as measured by the length of tenure of farm operators, are positively related to bank lending. We also find that de novo banks have a positive tendency to lend to small farms. When existing relationships between borrowers and incumbent lenders are stronger, de novo banks have greater difficulties in lending to small farms. We further find that, even within the category of small banks, lending to small farms (as a percentage of a banks assets) tends to decrease as the bank increases in size.     

Bank Consolidation and Small Business Lending: The Role of Community Banks

This paper examines how bank consolidation activity affected small business lending in local U.S. banking markets during two 3-year study periods, focussing on the role played by community banks in the process. During the 1994–1997 period, we find that consolidation activity involving big banks is associated with lower loan growth, whereas community bank consolidations and a greater presence of community banks in the market are associated with higher loan growth. During the 1997–2000 period, consolidation activity is either unrelated to small business loan growth or is associated with higher loan growth. In both study periods we find that, net of organization reclassifications due to consolidation or asset growth, the share of small business lending funded by community banks rose, particularly in markets undergoing consolidation.     

Bank Consolidation and Soft Information Acquisition in Small Business Lending

We empirically examine the impact of bank consolidation on bank acquisition of soft information about borrowers. Using a dataset of small business financing, we find that mergers of small banks have a negative impact on soft information acquisition, whereas mergers of large banks have no impact. We also find some evidence that an increase in organizational complexity upon a merger, rather than a post-merger cost-cut, is likely to cause a negative and significant impact on soft information acquisition by small banks. These findings are consistent with the organizational theory that predicts a comparative advantage of simple and flat organizations in acquiring and processing soft information.     

我国中小企业信贷风险识别因子的有效性分析——基于北京地区中小企业的信贷数据

中小企业在世界多国经济发展中占有举足轻重的地位,逐步成为商业银行主要的信贷对象,巴塞尔资本协议Ⅱ(BaselⅡ)由此对中小企业作出了重要性规定,以提高银行对中小企业客户信贷风险管理的重视。鉴于我国中小企业信贷数据缺失和质量较差的现状,本文以北京地区中小企业信贷数据为基础,利用二项逻辑回归(binary logistic)分析,比较定量数据和定性数据在我国中小企业信用风险识别中的重要性,并探求我国中小企业信用风险判别中较为重要的变量。本文的结论也将对与中国具有相似中小企业信贷现状的发展中国家具有一定程度的借鉴意义。     

A Neural Network Approach for Analyzing Small Business Lending Decisions

In this paper, we apply the neural network method to small business lending decisions. We use the neural network to classify the loan applications into the groups of acceptance or rejection, and compare the model results with the actual decisions made by loan officers. Data were collected from a leading bank in Central New York. The sample contains important financial statement and business information of borrowers and the loan officers' decisions. We conduct the network training on the data sample and find that the neural network has a stronger discriminating power for classifying the acceptance and rejection groups than traditional parametric and nonparametric classifiers. The results show that the neural network model has a high predictive ability. Our findings suggest that neural networks can be a very useful tool for enhancing small-business lending decisions and reducing loan processing time and costs.     

Specialization in Bank Lending: Evidence from Exporting Firms

We develop a novel approach for measuring bank specialization using granular data on borrower activities and apply it to Peruvian exporters and their banks. We find that borrowers seek credit from banks that specialize in their export destinations, both when expanding exports and when exporting to new countries. Firms experiencing country-specific export demand shocks adjust borrowing disproportionately from specialized banks. Specialized bank credit supply shocks affect exports disproportionately to countries of specialization. Our results demonstrate that firm credit demand is bank- and activity-specific, which reduces banking competition and affects the transmission and amplification of shocks through the banking sector.     

Role of Collateral and Personal Guarantees in Relationship Lending: Evidence from Japan's SME Loan Market

This paper investigates the determinants of the use of collateral and personal guarantees in Japan's SME loan market. We find that firms' riskiness does not have a significant effect on the likelihood that collateral is used. We find, however, that main banks whose claims are collateralized monitor borrowers more intensively and that borrowers who have a long-term relationship with their main banks are more likely to pledge collateral. These findings are consistent with the theory that the use of collateral is effective in raising the bank's seniority and enhances its screening and monitoring. This incentive effect for the bank becomes tenuous for personal guarantees.     

货币政策信贷渠道的经济区域效应研究——基于我国31个省际面板数据的经验证据

本文以2005年1月—2010年12月我国31个省份的月度数据为研究样本,运用面板向量自回归模型(Panel-VAR)对我国货币政策信贷渠道的传导效果进行了实证检验,研究结果表明:我国货币政策信贷渠道的传导效果存在明显的区域差异,对于经济发达地区来说,信贷投放在促进经济高速增长的同时,并不会带来显著的通货膨胀压力;而对于经济较发达地区和落后地区而言,信贷的投放并未有力推动经济的增长,反而会带来较为明显的通货膨胀压力。