Competition, specialization and bank-firm interaction: what happens in credit crunch periods?

TY - JOUR

T1 - Competition, specialization and bank-firm interaction: what happens in credit crunch periods?

AU - Malafronte, Irma

AU - Monferra', Stefano

AU - Porzio, Claudio

AU - Sampagnaro, Gabriele

PY - 2014/3/10

Y1 - 2014/3/10

N2 - This article empirically investigates the relationship between interbank competition, bank orientation and credit availability for a sample of more than 30 000 loans granted by a large banking group operating in the Italian credit market. We test whether and how, during a credit crunch period, competition affects bank orientation and how relationship lending and interbank competition can mitigate the credit crunch problem, for financially distressed firms. Using a unique and large bank–firm level data set, the main results show that an increase in competition is associated with a stronger relationship in terms of the length of the bank–borrower interaction, whereas the distance bank branch-headquarter negatively affects it. Moreover, a strong lender–borrower relationship, in terms of length and exclusivity, is found positively significant in determining the change in the amount of credit granted. Nonlinearity and sector specialization effects are tested, too, and report interesting results, supporting the crucial role of relationship lending during a financial crisis.

AB - This article empirically investigates the relationship between interbank competition, bank orientation and credit availability for a sample of more than 30 000 loans granted by a large banking group operating in the Italian credit market. We test whether and how, during a credit crunch period, competition affects bank orientation and how relationship lending and interbank competition can mitigate the credit crunch problem, for financially distressed firms. Using a unique and large bank–firm level data set, the main results show that an increase in competition is associated with a stronger relationship in terms of the length of the bank–borrower interaction, whereas the distance bank branch-headquarter negatively affects it. Moreover, a strong lender–borrower relationship, in terms of length and exclusivity, is found positively significant in determining the change in the amount of credit granted. Nonlinearity and sector specialization effects are tested, too, and report interesting results, supporting the crucial role of relationship lending during a financial crisis.

U2 - 10.1080/09603107.2014.892196

DO - 10.1080/09603107.2014.892196

M3 - Article

SN - 1466-4305

VL - 24

SP - 557

EP - 571

JO - Applied Financial Economics

JF - Applied Financial Economics

IS - 8

ER -