Journal Article10.1111/1468-0297.00682
Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure
Allen N. Berger,Gregory F. Udell +1 more
TL;DR: In this paper, the inner workings of relationship lending, the implications for bank organisational structure, and the effects of shocks to the economic environment on the availability of relationship credit to small businesses are modeled.
read more
Abstract: This paper models the inner workings of relationship lending, the implications for bank organisational structure, and the effects of shocks to the economic environment on the availability of relationship credit to small businesses. Relationship lending depends on the accumulation over time by the loan officer of 'soft' information. Because the loan officer is the repository of this soft information, agency problems are created throughout the organisation that may best be resolved by structuring the bank as a small, closely-held organisation with few managerial layers. The shocks analysed include technological innovations, regulatory regime shifts, banking industry consolidation, and monetary policy shocks. The issue of credit availability to small firms has garnered world-wide concern recently. Models of equilibrium credit rationing that point to moral hazard and adverse selection problems (eg, Stiglitz and Weiss, 1981) suggest that small firms may be particularly vulnerable because they are often so informationally opaque. That is, the informational wedge between insiders and outsiders tends to be more acute for small companies, which makes the provision of external finance particularly challenging. Small firms with opportunities to invest in positive net present value projects may be blocked from doing so because potential providers of external finance cannot readily verify that the firm has access to a quality project (adverse selection problem) or ensure that the funds will not be diverted to fund an alternative project (moral hazard problem).
read more
Chat with Paper
AI Agents for this Paper
Find similar papers on Google Scholar, PubMed and Arxiv
Write a critical review of this paper
Analyze citations of this paper to find unaddressed research gaps
Citations
Should I Stay or Should I Go? Firms’ Mobility Across Banks in the Aftermath of the Financial Crisis
Davide Arnaudo,Giacinto Micucci,Massimiliano Rigon,Paola Rossi +3 more
- 01 Mar 2019
TL;DR: In this paper, the authors show that the creation of new bank relationships was effective to ease the credit constraints of firms in the aftermath of the 2008-09 financial crisis: firms that started new bank relationship were able to maintain or even increase their outstanding loans.
23
Securitization and Compensation in Financial Institutions
Roman Inderst,Sebastian Pfeil +1 more
TL;DR: In this paper, the authors analyze the interaction between internal compensation policy, the quality of loans, and their securitization decision, and assess the case for requiring financial institutions to defer bonus pay so as to make incentives more commensurate with the longer-term risk of their transactions.
23
The Influence of Loan Officers on Loan Contract Design and Performance
TL;DR: In this article, the authors investigate the extent to which loan officers generate independent, individual effects on the design and performance of syndicated loans, and find that loan officers have significant influence on interest spreads, loan covenant design, and loan performance.
23
Distance, Bank Organizational Structure, and Lending Decisions
Geraldo Cerqueiro,Hans Degryse,Steven Ongena +2 more
- 01 Jan 2009
TL;DR: In this paper, the authors survey the literature on the effects of both a bank's organizational structure and the physical distance separating it from the borrower on lending decisions and find that banks engage in spatial pricing, which can be rationalized by the existence of transportation costs and information asymmetries.
23
Banking market size structure and financial stability: : Evidence from Eight Asian Countries
TL;DR: In this article, the authors examined the relationship between the banking market size structure and the stability of financial institutions and also analyzed the effect of bank upsizing on the financial stability, showing that a rise in large banks' market power, accompanying an increase in their market shares, lowers the capital adequacy of small banks.
References
Corporate financing and investment decisions when firms have information that investors do not have
TL;DR: In this paper, a firm that must issue common stock to raise cash to undertake a valuable investment opportunity is considered, and an equilibrium model of the issue-invest decision is developed under these assumptions.
17.6K
Credit Rationing in Markets with Imperfect Information.
Joseph E. Stiglitz,Andrew Weiss +1 more
TL;DR: In this paper, a model is developed to provide the first theoretical justification for true credit rationing in a loan market, where the amount of the loan and amount of collateral demanded affect the behavior and distribution of borrowers, and interest rates serve as screening devices for evaluating risk.
Determinants of corporate borrowing
TL;DR: In this article, the authors predict that corporate borrowing is inversely related to the proportion of market value accounted for by real options and rationalize other aspects of corporate borrowing behavior, such as the practice of matching maturities of assets and debt liabilities.
14.6K
Financial Intermediation and Delegated Monitoring
TL;DR: In this paper, the authors developed a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders, and presented a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary.
The Capital Structure Puzzle
TL;DR: The Capital Structure Puzzle as discussed by the authors is a well-known problem in finance, and it has been studied extensively in the literature, e.g., The Journal of Finance, Vol. 39, No. 3, 1983 (Jul., 1984), pp. 575-592.
7.4K