Lending Relationships and the Collateral Channel

Lending Relationships and the Collateral Channel

This article shows that lending relationships insulate corporate investment from fluctuations in collateral values. The sensitivity of corporate investment to changes in real-estate collateral values is halved when the length of relationship between a bank and a firm, or its board of directors, doub...

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Veröffentlicht in:Review of Finance 2023-05, Vol.27 (3), p.851-887
Hauptverfasser: Anderson, Gareth, Bahaj, Saleem, Chavaz, Matthieu, Foulis, Angus, Pinter, Gabor
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container_issue 3
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container_title Review of Finance
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creator Anderson, Gareth
Bahaj, Saleem
Chavaz, Matthieu
Foulis, Angus
Pinter, Gabor
description This article shows that lending relationships insulate corporate investment from fluctuations in collateral values. The sensitivity of corporate investment to changes in real-estate collateral values is halved when the length of relationship between a bank and a firm, or its board of directors, doubles. Long relationships with board members dominate relationships with the firm in dampening the collateral channel. Moreover, lending relationships with directors in their personal capacity insulate corporate investment over and above corporate relationships. Our findings support theories where collateral and private information are substitutes in mitigating credit frictions over the cycle and show that lending relationships are more multi-faceted than previously thought.
doi_str_mv 10.1093/rof/rfac041
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title Lending Relationships and the Collateral Channel
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