Short-Term Loans and Long-Term Relationships: Relationship Lending in Early America / Howard Bodenhorn.

Format:

Book

Author/Creator:

Bodenhorn, Howard.

Contributor:

National Bureau of Economic Research.

Series:

Historical Working Paper Series (National Bureau of Economic Research) no. h0137.

NBER historical working paper series no. h0137

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Short-Term Loans and Long-Term Relationships

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2001.

Summary:

Recent banking theory holds that durable firm-bank relationships are valuable to both parties. Using contract-specific loan records of a nineteenth-century U.S. bank, this paper shows that firms that form extended relationships with banks receive three principal benefits. First, firms with extended relationships face lower credit costs. As the bank-borrower relationship matures credit costs decline. Second, long-term customers are asked to provide fewer personal guarantees. Third-party guarantees are an efficient alternative to collateral in certain circumstances, and long-term clients are asked to provide fewer guarantees. Third, long-term bank customers more likely to have loan terms renegotiated during a credit crunch. Firms without access to public debt markets rely on bank credit, and continued access during a credit crunch is important for small, informationally opaque firms.

Notes:

Print version record

December 2001.