The Benefits of Lending Relationships: Evidence from Small Business Data
1994/03/01 by MITCHELL A. PETERSEN, Mitchell A. Petersen, RAGHURAM G. RAJAN +1 · 5,346 citations
Business, Management and Accounting · Economics, Econometrics and Finance · #Affect (linguistics) #Banking stability, regulation, efficiency #Business #Corporate Finance and Governance #Creditor #Debt #Economics #Finance #Financial system #Interpersonal ties #Monetary economics #Small business #Strong ties #Survey data collection #Working Capital and Financial Performance
paper · doi:10.1111/j.1540-6261.1994.tb04418.x
published in The Journal of Finance 49(1), 3-37 (Wiley)
openalex publication_date 1994/03/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/05
Abstract
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.
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