publication . Preprint . 2000

Banking Relations, Competition and Research Incentives

Thomas Gehrig;
Open Access
  • Published: 01 Feb 2000
When banks incur sunk costs to provide ex-ante information about customers, exclusive banking relations will occur under intense price competition when monitoring costs are low. When monitoring costs are sufficiently high, only non-monitored finance will be provided, typically, by multiple lenders. While multiple lending generally is (second-best) efficient when it emerges, relationship lending typically is not. In our framework, the informational rents in relationships of a single financier (house bank) typically exceed the risk premium required for financing projects from the unscreened pool of applicants. Accordingly, when entrepreneurs can affect repayment p...
free text keywords: relationship banking, multiple lending, monitoring, research incentives, jel:D82, jel:G21, jel:L13

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