Journal of Finance Vol. 49 No. 1 1994

The Benefits of Lending Relationships: Evidence from Small Business Data

Mitchell A. Petersen¹; Raghuram G. Rajan²

¹ Finance · ² Graduate School of Business, University of Chicago. Petersen thanks the Center for Research on Securities Prices while Rajan thanks the Graduate School of Business at the University of Chicago for funding. We thank Andrew Alford, Bob Aliber, Douglas Diamond, William Dunkelberg, Philip Dybvig, Anne G

Abstract

This paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm. We analyze data collected in a survey of small firms by the Small Business Administration. The primary benefit of building close ties with an institutional creditor is that the availability of financing increases. We find smaller effects on the price of credit. Attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit. In sum, relationships are valuable and appear to operate more through quantities rather than prices.

DOI

10.1111/j.1540-6261.1994.tb04418.x

Volume

49

Issue

1

Pages

3-37

Language

en

Sources

crossref openalex

Cite

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