Abstract
Using unique small business credit-file data from a major Finnish bank, I analyze how relationship characteristics are associated with loan interest rates. Data includes the effective loan rate and variables that describe the duration and scope of relationship, collateralization, firm characteristics, bank’s internal risk rating, and loan characteristics. The results show that longer duration tends to lower the cost of credit and that a long-term bank/firm relationship is beneficial especially to high-risk firms. As the relationship matures, the loan premiums for high-risk firms decrease at higher rate than for low-risk firms.
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Notes
As a condition of being given access to the loan files of this bank, I have promised confidentiality to the bank and the customers regarding identity and location.
See the correlation matrix in Appendix IV. Requirement of personal guarantee (Pergua) has negative and statistically significant correlation with the maturity of the loan (Maturity). According to the additional probit-regression (not reported), it is likely that the firm has higher internal risk rating when personal guarantee is required.
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Acknowledgements
I am grateful for the comments and suggestions made by Takeo Hoshi, Jukka Perttunen, Juha-Pekka Kallunki, Markku Rahiala, Jonathan A. Scott, Hannu Schadéwitz, Sandra Sizer, and anonymous referees. The following foundations supported this work with research grants; Academy of Finland (Finland), American-Scandinavian Foundation (New York, USA), Emil Aaltosen Säätiö (Finland), the Finnish Cultural Foundation (Finland), Ella ja Georg Ehrnroothin Säätiö (Finland), Jenny ja Antti Wihurin rahasto (Finland), Marcus Wallenbergin Liiketaloudellinen Tutkimussäätiö (Finland), Kaupallisten ja teknillisten tieteiden tukisäätiö (Finland), Liikesivistysrahasto (Finland), Osuuspankkiryhmän Tutkimussäätiö (Finland), Oulun yliopiston Tukisäätiö (Finland), Säästöpankkien Tutkimussäätiö (Finland), Tauno Tönningin Säätiö (Finland) and Yrjö Uiton Säätiö (Finland). I greatfully acknowledge these foundations.
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Appendices
Appendix I
Multiple Loans Control
Appendix II
Endogeneity Tests
Appendix III
Conventional Rate
Appendix IV
(Correlation Matrix)
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Peltoniemi, J. The Benefits of Relationship Banking: Evidence from Small Business Financing in Finland. J Finan Serv Res 31, 153–171 (2007). https://doi.org/10.1007/s10693-007-0009-0
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DOI: https://doi.org/10.1007/s10693-007-0009-0