publication . Article . Other literature type . 1995

Relationship Lending and Lines of Credit in Small Firm Finance.

Allen N. Berger; Allen N. Berger; Gregory F. Udell;

Open Access

Published: 01 Jan 1995 Journal: Journal of Business, volume 68, issue 3 July, pages 351-81

Summary

Abstract

This article examines the role of relationship lending in small firm finance. It examines price and nonprice terms of bank lines of credit extended to small firms. The focus on bank lines of credit allows the examination of a type of loan contract in which the bank-borrower relationship is likely to be an important mechanism for solving the asymmetric information problems associated with financing small enterprises. The authors 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 abou...

doi: 10.1086/296668

Subjects

free text keywords: Interest rate, media_common.quotation_subject, media_common, Information asymmetry, Loan, Credit history, Pledge, Finance, business.industry, business, Financial system, Economics, Syndicated loan, Collateral, Small business financing

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