:: Volume 14, Issue 2 (Spring 2019) ::
J. Mon. Ec. 2019, 14(2): 133-157 Back to browse issues page
The Effect of Relationship Lending on Loan Contract Terms
Rasoul Foroughfard 1, Mohammad Rahmati1
1- Sharif University of Technology
Abstract:   (660 Views)

This paper investigates the effect of relationship-lending on loan contract terms, especially on the interest rate, loan value, and collateral requirements. For this purpose, data on 4850 loans granted by a bank in 2016 is employed. Our estimations show a negative and significant relationship between the interest rate and quality and quantity of borrower-lender relationship. Furthermore, there has been a positive and significant relationship between loan volumes granted to the borrower and the scope of his/her relation with the bank. Finally, there has been a positive and insignificant relationship between customer relationship with the bank and pledged collateral. The relationship-lending, as a solution for asymmetry information problems, is a winner-winner game such that the lender saves on screening expenses and the borrower is financed at lower costs. Thus, deliberate regulation in support of relationship lending increases the welfare of both sides of the credit market.

Keywords: Bank, Borrower, Lender, Asymmetry Information, Relationship-Lending
Full-Text [PDF 211 kb]   (459 Downloads)    
Type of Study: Original Research - Theoric | Subject: Monetary Economics
Received: 17 Jan 2018 | Accepted: 28 Jul 2019 | Published: 5 May 2020

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Volume 14, Issue 2 (Spring 2019) Back to browse issues page