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The Importance Of Being Known: Relationship Banking And Credit Limits, Atreya Chakraborty
The Importance Of Being Known: Relationship Banking And Credit Limits, Atreya Chakraborty
Accounting and Finance Faculty Publication Series
This paper measures the importance of bank-firm relationships in obtaining higher credit “limits.” We use data from a relatively unused section of the National Survey of Small Business Finance (NSSBF, 1993) on credit limits, credit sources, and contract terms for firms with lines of credit from multiple banks. This lets us isolate the credit limit that each bank provides the same firm, eliminating the need to control for often immeasurable, unreliable, or firm-specific “soft” information. For a median Line of Credit (LOC) of $250,000, we find that a bank with a five-year information advantage provides a LOC limit that is …