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Full-Text Articles in Business
Relationship Lending And Lines Of Credit In Small Firm Finance, Allen N. Berger, Gregory F. Udell
Relationship Lending And Lines Of Credit In Small Firm Finance, Allen N. Berger, Gregory F. Udell
Faculty Publications
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.
Some Evidence On The Empirical Significance Of Credit Rationing, Allen N. Berger, Gregory F. Udell
Some Evidence On The Empirical Significance Of Credit Rationing, Allen N. Berger, Gregory F. Udell
Faculty Publications
This paper examines the credit rationing debate using detailed contract information on over one million commercial bank loans from 1977 to 1988. While commercial loan rates are "Sticky," consistent with rationing, this stickiness varies with loan contract terms in ways that are not predicted by equilibrium credit rationing theory. In addition, the proportion of new loans issued under commitment does not increase significantly when credit markets are tight, despite the fact that borrowers without commitments can be rationed whereas commitment borrowers are contractually insulated from rationing. Overall, the data suggest that equilibrium rationing is not a significant macroeconomic phenomenon.