Working Paper: CEPR ID: DP10050
Authors: Thorsten Beck; Hans Degryse; Ralph De Haas; Neeltje Van Horen
Abstract: Using a novel way to identify relationship and transaction banks, we study how banks? lending techniques affect funding to SMEs over the business cycle. For 21 countries we link the lending techniques that banks use in the direct vicinity of firms to these firms? credit constraints at two contrasting points of the business cycle. We show that relationship lending alleviates credit constraints during a cyclical downturn but not during a boom period. The positive impact of relationship lending in an economic downturn is strongest for smaller and more opaque firms and in regions where the downturn is more severe.
Keywords: business cycle; credit constraints; relationship banking
JEL Codes: F36; G21; L26; O12; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Greater presence of relationship banks (G21) | Fewer credit constraints during the 2008 economic downturn (G21) |
| Greater presence of relationship banks (G21) | Reduced probability of being credit constrained (G51) |
| Fewer credit constraints during the 2008 economic downturn (G21) | Alleviating financing constraints (G32) |
| Relationship lending (G21) | Alleviating financing constraints during economic downturns (E44) |
| Presence of relationship banks (G21) | Reduced credit constraints for young, small, and opaque firms (G32) |
| Presence of relationship banks (G21) | Reduced credit constraints in regions experiencing sharper downturns (F65) |