Abstract
This article examines the role of relationship lending in small firm finance. It examines price and nonprice terms of bank lines of credit (L/Cs) extended to small firms. The focus on LICs allows the examination of a type of loan contract in which the hank- borrower relationship is likely to be an important mechanism for solving the asymmetric information problems associated with financing small enterprises. We find that borrowers with longer banking relationships pay lower interest rates and are less likely to pledge collateral.These results are consistent with theoretical arguments that relationship lending generates valuable information about borrower quality.
Keywords
PledgeCollateralLoanBusinessInformation asymmetryQuality (philosophy)Financial systemFinanceMonetary economicsEconomics
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Publication Info
- Year
- 1995
- Type
- article
- Volume
- 68
- Issue
- 3
- Pages
- 351-351
- Citations
- 829
- Access
- Closed
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Cite This
Allen N. Berger,
Gregory F. Udell
(1995).
Relationship Lending and Lines of Credit in Small Firm Finance.
The Journal of Business
, 68
(3)
, 351-351.
https://doi.org/10.1086/296668
Identifiers
- DOI
- 10.1086/296668