Relationship Lending and Credit Quality

Stefano Monferra', Franco Fiordelisi, Stefano Monferrà, Gabriele Sampagnaro

Research output: Contribution to journalArticle

21 Citations (Scopus)

Abstract

We analyse whether relationship lending reduces borrowers’ probability of default and, if so, whether this beneficial effect also applies to borrowers who are more exposed to the economic downturn. By using unique, matched data of 43,000 firms and their lending institutions between 2008 and 2010, we document that the probability that a firm becomes distressed decreases if the creditor concentration is high and if the duration of bank-firm relationships is long. While these results appear to support the beneficial effect of relationship lending practices, we note that the organisational distance of banks also matters both as a determinant of loan distress and loan downgrading. The results are stronger for smaller firms.
Original languageEnglish
Pages (from-to)295-315
Number of pages21
JournalJournal of Financial Services Research
Volume46
DOIs
Publication statusPublished - 2014

Keywords

  • Accounting
  • Economics and Econometrics
  • Finance
  • Internal rating
  • Probability of default
  • Relationship lending

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