Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure

By Allen N. Berger, Greg Udell. 2002

1,833 citations recorded by the source corpus.

This paper models the inner workings of relationship lending, the implications for bank organizational structure, and the effects of shocks to the economic environment on the availability of relationship credit to small businesses. Relationship lending depends on the accumulation over time by the loan officer of "soft" information. Because the loan officer is the repository of this soft information, agency problems are created throughout the organization that are best resolved by structuring the bank as a small, closely-held organization with few managerial layers. The shocks analyzed include technological innovations, regulatory regime shifts, banking industry consolidation, and monetary policy shocks.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/cca91f191a1ba196d28fe4c51a1ad735c248506e

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

In Finance

Citations in the corpus

Innovation, SMEs and the liability of distance: the demand and supply of bank funding in UK peripheral regions (2016, background): “4 nature of banking systems has highlighted two key changes which may have spatial implications for lending behaviour in banks (Berger and Udell, 2002; Alessandrini et al., 2009b).”
Further Evidence on the Link between Finance and Growth: An International Analysis of Community Banking and Economic Performance (2003, neutral): “As well, the fact that the loan officer is the repository for this information may create agency problems within the banking organization that require a closely-held structure with few managerial layers that large organizations cannot easily accommodate (Berger and Udell 2002).”
(International) R&D Collaboration and SMEs: The effectiveness of targeted public R&D support schemes (2014, background): “…often the case especially for young and small- and medium-sized firms (SMEs), R&D projects may be foregone if these firms face binding financing constraints in capital markets (see Berger and Udell, 2002; Carpenter and Petersen, 2002; Hyytinen and Toivanen, 2005; Czarnitzki and Hottenrott, 2011b).”
Does Market Size Structure Affect Competition? The Case of Small Business Lending (2007, neutral): “…the communication channels of large organizations (Stein 2002), and/or because dealing with this soft information may create agency problems that require a closely-held organizational structure (Berger and Udell 2002).6 A number of empirical studies provide support for these comparative advantages.”
Competition and Relationship Lending: Friends or Foes? (2011, positive): “The idea is that large and geographically dispersed banks are highly hierachized institutions, and that hierarchiness is associated with organizational diseconomies which place these banks at a disadvantage with respect to small, local banks in lending to information-intensive borrowers on a relatio”
Small Business Credit Scoring and Credit Availability* (2007, positive): “Finally, Berger et al. (2005b) examine the effects of using SBCS to reduce informational opacity on loan maturity.”