What is it about?
This paper analyses whether repeated borrowing from the same bank affects loan contract terms. We find that relationship loans pay less spread and require less collateral compared to nonrelationship loans. These effects for relationship loans are not derived from differences between relationship and nonrelationship loans. The reduction of interest rate spread for relationship loans disappeared during the financial crisis. The results also reveal that borrowers paid higher interest rate spreads, had to post more collateral and the maturity was shortened during the crisis period. The reduction in interest rate spread and collateral depends on the protection of creditors’ rights. In countries where creditors’ rights are well protected, relationship loans pay less spread and are required to post less collateral than relationship loans in countries with weak protection of creditors’ rights.
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Why is it important?
We shed new lights on relationship banking by studying, across the world, whether relationship banking is beneficial for borrowers. Our paper adds to this literature by completing this analysis considering the value of relationship banking in an international context and during a period that includes the global financial crisis.
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This page is a summary of: The value of relationship banking: International evidence, Research in International Business and Finance, January 2023, Elsevier,
DOI: 10.1016/j.ribaf.2022.101822.
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