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What is Relationship Lending

Handbook of Research on Global Business Opportunities
Refers to a common practice in credit financing where a corporation has close ties to a financial institution. Relationship lending helps to reduce asymmetric information, which potentially creates benefits for borrowers.
Published in Chapter:
Bank vs. Bond Finance: A Cultural View of Corporate Debt Financing
Wolfgang Breuer (RWTH Aachen University, Germany), Benjamin Quinten (RWTH Aachen University, Germany), and Astrid J. Salzmann (RWTH Aachen University, Germany)
Copyright: © 2015 |Pages: 27
DOI: 10.4018/978-1-4666-6551-4.ch014
This chapter enhances the growing research field of Cultural Finance by analyzing the relationship between cultural value types—in particular, Autonomy and Embeddedness—and the corporate debt choice of either bank or bond financing. The authors derive their hypotheses from a slight modification and re-interpretation of the Chemmanur and Fulghieri (1994) approach of “relationship lending.” Referring to the importance of specific human capital investments and individuals' future orientation, they show that firms in autonomy cultures tend toward bank finance, whereas firms in embeddedness cultures show a preference for financing by issuing bonds. In a cross-country analysis with 71 countries, the authors find empirical evidence for their established hypotheses.
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