search query: @author Winters, D. B. / total: 2
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| Author: | Blackwell, D. W. Winters, D. B. |
| Title: | Banking relationships and the effect of monitoring on loan pricing |
| Journal: | Journal of Financial Research
1997 : SUMMER, VOL. 20:2, p. 275-289 |
| Index terms: | BANK LENDING SMALL BUSINESS LOANS PRICING |
| Language: | eng |
| Abstract: | This paper shows that companies with more concentrated borrowing at a given bank pay lower interest rates, holding constant credit risk and other firm and loan characteristics. The paper finds a positive relation between monitoring frequency and the loan interest rate, holding credit risk constant. The paper shows that firms with longer relationships are monitored less frequently by banks and that the less frequently monitored companies pay lower interest rates. A small firm can lower its cost of capital by concentrating most of its borrowing with a single bank , which allows the bank to build an information advantage over other lenders. The bank's cost savings will be passed on to the firm in the form of lower interest rates, because of potential competition. |
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