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Cited by 5,440Banking stability, regulation, efficiencyWorking Capital and Financial PerformanceCorporate Finance and Governance

The Benefits of Lending Relationships: Evidence from Small Business Data

PETERSEN, MITCHELL A., RAJAN, RAGHURAM G.·1994·The Journal of Finance
DOI 10.1111/j.1540-6261.1994.tb04418.x
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Abstract

This paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm. We analyze data collected in a survey of small firms by the Small Business Administration. The primary benefit of building close ties with an institutional creditor is that the availability of financing increases. We find smaller effects on the price of credit. Attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit. In sum, relationships are valuable and appear to operate more through quantities rather than prices.

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Crossref · 10.1111/j.1540-6261.1994.tb04418.x

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  • The study uses firm-level and province-level control variables following relevant studies to avoid heterogeneity.

    “To avoid heterogeneity, we use a set of firm-level and province-level control variables following several relevant studies about SME financing constraints and external financing (see, Petersen and Rajan 1994; Laeven 2003; Rice and Strahan 2010; Hasan et al. 2017).”

    From Local Bank, Digital Financial Inclusion and SME Financing Constraints: Empirical Evidence from China (2022) · cites this paper as Petersen and Rajan 1994

  • Rates on loans generally did not decline with the length of the relationship when loans not issued under lines of credit were included.

    “although rates on loans generally did not decline with the length of the relationship when loans not issued under lines of credit were included (Petersen and Rajan, 1994).”

    From The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle (1998) · cites this paper as Petersen and Rajan, 1994

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Authors
PETERSEN, M. A., & RAJAN, R. G.
Affiliations
University of Chicago (US)
ORCID
Venue
The Journal of Finance
Publisher
Wiley
Published
1994-03
Volume
49
Issue
1
Pages
3-37
ISSN
  • 0022-1082 (ISSN-L)
  • 1540-6261
DOI
10.1111/j.1540-6261.1994.tb04418.x
OpenAlex
W2143841915
Cited by
5,440
References
4
Citations by year
2026: 205 · 2025: 235 · 2024: 202 · 2023: 206 · 2022: 210 · 2021: 219 · 2020: 217 · 2019: 208 · 2018: 213 · 2017: 230 · 2016: 243 · 2015: 258 · 2014: 227 · 2013: 244 · 2012: 257
FWCI
66.85
Type
journal article
Language
en
Open access
closed
Licence
onlinelibrary.wiley.com/termsAndConditions#vor (vor, 6635 d)
Locations
  • The Journal of Finance (publishedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
Topics
  • Social Sciences › Economics, Econometrics and Finance › Finance › Banking stability, regulation, efficiency
  • Social Sciences › Business, Management and Accounting › Accounting › Working Capital and Financial Performance
  • Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
Keywords
lending relationships, small business financing, access to credit, cost of credit, institutional lenders

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