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The purpose of this paper is to examine whether prior bank lending relationships affect firms’ liquidity management.

The authors mainly work on evaluating first, whether prior lending relationships affect corporate cash holdings? and second, whether the cash flow sensitivity of cash varies systemically with lending relationships. Three different ways are used to define lending relationships, including the lending relationship dummy, a firm’s maximum relationship intensity in terms of number of deals across all lenders and a firm’s maximum relationship intensity in terms of dollar amounts across all lenders. In addition, the paper applies two-stage least squares (2SLS) to address the concern of endogeneity between firms’ liquidity management and banking relationships.

The authors find that firms with lending relationships maintain a lower level of cash holdings and save less cash out of cash flow. Furthermore, the effect of lending relationships is more profound for firms with high cash flow. The results suggest that prior lending relations alleviate information asymmetry, lower the cost of capital and therefore affect firms’ propensity to retain cash and maintain a high level of cash holdings.

This paper contributes to both the liquidity management literature and the literature on the value of maintaining lending relationships with banks. Researchers should take into consideration the lending relationships built over the course of the lending when assessing firms’ cash policies.

Bank lending relationship mitigates the information asymmetry problem, one type of market friction, and facilitates firms’ future external financing, thereby affecting firms’ cash policies and giving more flexibility in liquidity management. The value of lending relationships distinguishes bank loans from public bonds. Therefore, firms, especially those facing more information asymmetry issue, should take into account the benefits from lending relationships in their future debt financing.

Extant literature examines how firm characteristics affect firms’ cash holdings. This paper introduces a new factor that could explain corporate cash policy.

The purpose of this paper is to apply a capability perspective to investigate the shift from relationship lending to transaction lending in a bank’s corporate segment. The authors investigate the impact of three operational capabilities: assisting corporate clients in funding and business operations, management of customer relationships and internal cooperation on performance in relationship and transaction lending.

The primarily empirical material comprises longitudinal survey data, collected on three occasions during the period 1998 throughout 2001 from one of Sweden’s largest banks. Data are analyzed using factor analysis and OLS regression.

Results show that the effects of the three capabilities are contingent on the type of lending strategy: In relationship lending, assisting corporate clients has no significant direct effect on performance; however, it has an indirect effect on performance via the management of customer relationships. In transaction lending, assisting corporate clients has a direct effect on performance, and this effect becomes stronger as the transaction strategy is further implemented. The results also show that the direct effect of the management of customer relationships and cooperation on performance is significant in both strategies; however, the relation is stronger in relationship lending compared with transaction lending.

The findings indicate that the choice of lending strategy is more complex than a choice between a strict relationship strategy and a strict transaction strategy and that a strategy that leads to competitive advantage includes elements of both strategies.

This paper investigates the effect of entrepreneurial orientation (EO) on small- and medium-sized enterprises' (SMEs) access to credit. Starting with the idea that SMEs' strategy-making process, structures and behaviour can favour credit access, the authors also explore the moderating role of bank lending technologies in shaping this relationship.

This study relies on a unique survey of Austrian and Italian SMEs which contains detailed information on access to credit, EO dimensions, relationship lending and firm-level characteristics. The authors perform stepwise logistic regressions to assess whether EO interacts with SME's access to finance, and how relationship lending enhances this relationship.

Proactiveness, autonomy and competitive aggressiveness are important constructs for improving access to bank financing. Those dimensions became more important when a relationship bank is involved, suggesting a role for relationship lending in overcoming SMEs' opaqueness. In addition, relationship lending is crucial for innovative SMEs in overcoming credit denial rates.

The small sample did not allow to analyse the effect of EO on discouraged borrowers. Furthermore, alternative measures of relationship lending (such as geographical proximity or the length of the relationship) and the share of credit granted by the relationship bank would have been interesting to further validate our results.

This study shows that EO dimensions and the type of lending technology are relevant for the financial success of SMEs. More precisely, the authors show that diversity within the banking system helps innovative, autonomous, proactive and competitive SMEs. These important pieces of soft information are injected into the final lending decision when a relationship bank is involved. The evidence suggests the need for SMEs to interact with local banks to fully exploit their EO posture.

To the authors' knowledge, this paper is the first attempt to analyse whether relationship lending can affect the EO–credit access relation.

The purpose of this paper is to answer the increasing calls to analyse how lending relationship between banks and their small- and medium-sized enterprises (SMEs) work. More precisely, the main aim is to investigate the lending approach(es) and criteria used by banks to assess loan applications from their relationship-managed (RM) SMEs’ clients. Other objectives include investigating the level of congruence in terms of lending practices and processes among the sample banks in New Zealand (NZ) and to discern how the assessment of the SME owner/manager is done within the relationship-banking framework.

The research objectives concern investigating processes and not variances. Thus, a qualitative research approach was used. Extensive data was collected via interviews across representative banks in NZ and thematic analysis was used to analyse the data.

The findings include a detailed analysis of how relationship banking actually works; how in NZ, the main bank brands use three criteria of lending (financials, security and character) as a framework of assessing loan applications from RM-clients – which is different from the character, capital, capacity, conditions, and collateral (5Cs) that are widely used and discussed as the framework of lending; and an elucidation as to why and how character assessment is different from the other criteria of lending.

To the best of authors’ knowledge, this is the first study to investigate the mechanisms and processes that banks use to deal with their RM-SMEs, show the existence of a different framework of lending other than the 5Cs and attempt an explanation as to why character evaluation is different from that of the other criteria of lending.

The purpose of this paper is to examine the use of single vs multiple lenders by Kansas farms. Previous studies suggest that as the risk level of the firm changes, borrowers desire to enhance the probability of obtaining credit at the lowest possible cost may cause them to use multiple lenders.

A model is adopted from the banking literature to describe farm behavior in obtaining credit from a single vs multiple lenders. Using farm-level data from the Kansas Farm Management Association, an empirical model analyzes how farm characteristics affect the number of lending relationships. A model is developed to analyze the number of lending relationships effect on the profitability of the farm.

It is found that highly leveraged farms seek additional lending relationships supporting the theoretical model and that additional lending relationships correlate to a decrease in profitability. Roughly, 50 percent of Kansas farmers that borrow use a single lender. Roughly 48 percent use from two to four lenders, with the remaining 2 percent using more than four lenders.

Provides empirical results to support developed theoretical framework on the number of lending institutions. This study helps understand factors correlated to a farmer's decision to use multiple lenders. Analyzing the number of lending relationships helps understand how farmers manage their debt to maintain access to credit when needed at the lowest possible cost.

To provide a selective review of most recent developments in experimental economics of banking and lending and to summarize and synthesize the experiment designs and results in banking under asymmetric information.

The review includes recently published or working papers (2006–2013) that exclusively employ experimental economics methodology, especially for studying the impact of formal or informal institutions on lending in credit markets.

The results of the reviewed experimental studies provide support for the important role of both informal (e.g., relationship banking and reputation) and formal (e.g., third-party enforcement; collateral) institutions and their impact on credit market performance, as well as the importance of studying the interaction of the two types of institutions.

The number of studies reviewed is fairly small but growing, indicating that this is the area of growing significance.

Controlled economic experiments are better able to address the questions regarding the direction of causality in empirical relationships. Economic experiments are particularly useful in studying complex markets like credit and capital and in eliciting specific effects of institutions on credit market performance. Such well-established empirical relationships will be able to provide guidance for policy making for financial market reform.

This is the first review of laboratory research in banking and lending under asymmetric information that aims to call attention to this area of research and serves as a starting point for an interested researcher and provide future direction.

This study examines the impact of firm-bank relationships on bank loan spreads and the mitigating role of firm credit ratings on that impact.

The study sample consists of Indonesian publicly listed companies for the period 2006 to 2016; bank-loan data was extracted from the Loan Pricing Corporation Dealscan database. For the degree of firm-bank relationships, the data on each loan is manually computed, using five different methods taken from Bharath et al. (2011) and Fields et al. (2012). All of the regression analyses are controlled for the year fixed effects, heteroscedasticity, and firm-level clustering. To address the endogeneity issues, this study uses several methods, including partitioning the sample, running nearest-neighbour and propensity score matching tests, and using instrumental variables in two-staged least-squares regression models.

In line with relationship theory and in opposition to the hold-up argument, this study finds that lending relationships reduce bank loan spreads and that the impact is more noticeable among non-rated Indonesian firms. Specifically, each additional unit in the total number of years of a firm-bank relationship and the number of previous loan contracts with the same bank are associated with 7.34 and 9.15 basis-point decreases, respectively, in these loan spreads.

Corporations and banks should maintain close, long-term relationships to reduce the screening and monitoring costs of borrowing. Regulators should create public policies that encourage banks to put more emphasis on relationships in their lending practices, especially in relation to crisis-prone companies.

To the best of the authors’ knowledge, this is the first study to examine the impact of lending relationships on bank loan spreads in Indonesia. The study offers insights on banking relationships in emerging markets with concentrated banking industries, underdeveloped capital markets and prominent business-group affiliations.

This paper aims to analyse the exposure at default (EAD) in the event of multiple banking relationships to understand the differences with respect to solo banking relationships and forecast the banks risk exposure.

The paper uses a unique database provided by the Italian public credit register representative of the full Italian market before the financial crisis. The analysis compares different EAD risk proxies for debtors with unique and multiple banking relationships to underline the main differences among the two groups.

Results show that EAD forecast could be improved considering the existence of exposures with other lenders and banks that consider such type of information can reduce the risk of underestimating the risk exposure of a debtor.

The paper is the first attempt to model the EAD on the basis of the existence of multiple lending exposures. Results demonstrate a different lender’s risk exposure for debtors with multiple credit risk exposure and show the usefulness of the information about the overall system exposure in evaluating the risk exposure related to this type of customers.

China as a main emerging and transition economy has since 2006 opened up its banking market to foreign competition. Thus far, the penetration of foreign banks has been only moderate with around 2 per cent market share of the total banking market, despite the widely held view that foreign banks operate at a higher level of efficiency and that Chinese state-owned banks (SOBs) operate at a lower level of efficiency. The purpose of this paper is to explore the relationship between bank ownership and the lending behaviour and relationship banking that stems from the Chinese tradition of “guanxi”.

Based on three bank types the authors construct a model of the choice of bank type and show how that model can be estimated using a multinomial logit. The authors assume that firms choose a bank type as a function of firm characteristics (Berger et al., 2008; Ongena and Sendeniz-Yüncü, 2011), deal terms (Machauer and Weber, 2000; Ziane, 2003), and industry classification (Uchida et al., 2008; Ongena and Sendeniz-Yüncü, 2011).

This paper finds the existence of a close banking relationship of a “guanxi” type between SOBs and state-owned enterprises (SOEs). This is shown up in the form of better deal terms for the SOE. In the case of foreign banks the authors find that a foreign bank-foreign owned enterprise relationship exists but this is based on risk quality and no advantages in deal terms, which suggest a more commercial-based relationship. The empirical findings are that transparent and high-quality firms are likely to engage with foreign banks, while state-owned firms are more likely to engage with SOBs.

In China, few studies have addressed the potentially important role of bank ownership on lending behaviour (e.g. Firth et al., 2008; Berger et al., 2009). The authors extend the analysis by distinguishing not only between foreign and domestic banks, but also between SOBs and other domestic banks. This research seeks to enhance the understanding of bank ownership, lending behaviour and relationship banking.

This paper examines the Competition Commission report on the provision of small and medium‐sized enterprise (SME) banking services in the UK. The examination will centre on the perceived clash between the ‘remedies’ proposed by the Competition Commission and the present forms of lending decision making, a key function in business banking. It is concluded that the Competition Commission assessment of the provision of banking services by clearing banks to small firms, directs scant attention as to how banking services are ‘manufactured’ or banks actually make decisions and operate in practice.