Title: Lines of credit and relationship lending in small firm finance

Authors: Sahar Loukil; Anis Jarboui

Addresses: Faculty of Economic Science and Management, Management Department, Sfax University, Sfax, Tunisia ' Higher Institute of Business Administration, Sfax University, Sfax, Tunisia

Abstract: This paper examines the role of relationship lending using a dataset on lines of credits (L/Cs) obtained by small firms. We analyse the impact of relationship intensity on loan contract terms through overcoming existing information asymmetries. For the first time, we combine classic measures of relationship lending and interactional variables, measuring social relations between loan officer and firm manager. Using a panel loan-level dataset provided by several banks in Tunisia for the years 2009-2011 and a questionnaire addressed to loan officers, we find that, generally, firms with high scope of the banking relationship and good social interactions benefits from the availability of funds at lower cost and a lower probability of collateral requirement. These effects are more important for cost of credit. The results confirm that, in sum, relationships are valuable and appear to operate more through prices rather than quantities.

Keywords: relationship lending; social interactions; private information; fund availability; cost of credit; collateral requirements; credit lines; small firm finance; small firms; relationship intensity; loan contract terms; information asymmetry; banking relationships.

DOI: 10.1504/IJBAF.2015.075340

International Journal of Behavioural Accounting and Finance, 2015 Vol.5 No.3/4, pp.314 - 333

Received: 17 Nov 2014
Accepted: 25 Oct 2015

Published online: 15 Mar 2016 *

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