Credit market concentration, relationship lending and the cost of debt

Stefano Bonini, Alberto Dell'Acqua, Matteo Fungo, Vlado Kysucky

Research output: Contribution to journalArticlepeer-review

25 Scopus citations

Abstract

We investigate how the banking industry concentration and the strength of credit relationships (relationship lending) jointly affect the cost of borrowing of firms. Our results indicate that relationship lending is not associated with the rent extraction mechanism deriving from informational lock-in. Conversely, market concentration appears to be associated with firms' higher cost of funding. But the effect is fully compensated if the relationship between the firm and the bank is long and comprehensive. Controlling for a number of covariates and for endogeneity concerns leaves results unchanged. Our results shed some new light on the unclear effects documented by Kysucky and Norden (2016) of relationship lending on the cost of financing.

Original languageEnglish
Pages (from-to)172-179
Number of pages8
JournalInternational Review of Financial Analysis
Volume45
DOIs
StatePublished - 1 May 2016

Keywords

  • Credit market concentration
  • Lending technologies
  • Relationship lending
  • SME financing

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