NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Short-Term Loans and Long-Term Relationships: Relationship Lending in Early America

Howard Bodenhorn

NBER Historical Working Paper No. 137*
Issued in December 2001
NBER Program(s):   DAE

Recent banking theory holds that durable firm-bank relationships are valuable to both parties. Using contract-specific loan records of a nineteenth-century U.S. bank, this paper shows that firms that form extended relationships with banks receive three principal benefits. First, firms with extended relationships face lower credit costs. As the bank-borrower relationship matures credit costs decline. Second, long-term customers are asked to provide fewer personal guarantees. Third-party guarantees are an efficient alternative to collateral in certain circumstances, and long-term clients are asked to provide fewer guarantees. Third, long-term bank customers more likely to have loan terms renegotiated during a credit crunch. Firms without access to public debt markets rely on bank credit, and continued access during a credit crunch is important for small, informationally opaque firms.

*Published: Bodenhorn, Howard. "Short-Term Loans And Long-Term Relationships: Relationship Lending In Early America," Journal of Money, Credit and Banking, 2003, v35(4,Aug), 485-505.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, a site with your domain name in ".GOV", or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

 
Publications
Activities
Meetings
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org