Small Business Credit Availability and Relationship Lending:
The Importance of Bank Organisational Structure
Allen N. Berger
Board of Governors of the Federal Rerve System
Washington, DC 20551 U.S.A.
and
Wharton Financial Institutions Centre
舌苔厚白口臭怎么治
Philadelphia, PA 19104 U.S.A.
v
Gregory F. Udell
维瓦尔第四季春
Kelley School of Business, Indiana University
干鲍鱼泡发方法
Bloomington, IN 47405
gudell@indiana.edu
Forthcoming, Economic Journal, 2002
6年级上册数学题The opinions expresd do not necessarily reflect tho of the Federal Rerve Board or its staff. The authors thank the editors Stephen Machin and Robert Cressy, the anonymous referees, and the other participants at the Conference on Funding Gaps at Warwick University for helpful comments and suggestions.
Plea address correspondence to Gregory F. Udell, Kelley School of Business, Indiana University, 1309 East Tenth Street, Bloomington, IN 47405, phone: 812-855-3394, fax: 812-855-5875, email: gudell@indiana.edu.
Abstract
This paper models the inner workings of relationship lending, the implications for bank organisational structure, and the effects of shocks to the economic environment on the availability of relationship credit to small business. Relationship lending depends on the accumulation over time by the loan
officer of “soft” information. Becau the loan officer is the repository of this soft information, agency problems are created throughout the organisation that may best be resolved by structuring the bank as a small, cloly-held organisation with few managerial layers. The shocks analyd include technological innovations, regulatory regime shifts, banking industry consolidation, and monetary policy shocks. JEL Classification Numbers: G21, G28, G34, L23
国学书籍Key words: Banks, Small Business, Mergers, Relationship lending, Organisational Structure
The issue of credit availability to small firms has garnered world-wide concern recently. Models of equilibrium credit rationing that point to moral hazard and adver lection problems (e.g., Stiglitz and Weiss, 1981) suggest that small firms may be particularly vulnerable becau they are often so informationally opaque. That is, the informational wedge between insiders and outsiders tends to be more acute for small companies, which makes the provision of external finance particularly challenging. Small firms with opportunities to invest in positive net prent value projects may be blocked from doing so becau potential providers of external finance cannot readily verify that the firm has access to a quality project (adver lection problem) or ensure that the funds will not be diverted to fund an alternative project (moral hazard problem).
闲情逸趣Small firms are also vulnerable becau of their dependency on financial institutions for external funding. The firms simply do not have access to public capital markets. As a result, shocks to the banking system can have a significant impact on the supply of credit to small business. Thus, small firms are subject to funding problems in equilibrium and the problems may be exacerbated during periods of diquilibrium in financial markets.
狗能吃辣吗One of the most powerful technologies available to reduce information problems in small firm finance, and a main subject of this paper, is “relationship lending.” Under relationship lending, banks acquire information over time through contact with the firm, its owner, and its local community on a variety of dimensions and u this information in their decisions about the availability and terms of credit to the firm. Recent empirical evidence provides support for the importance of a bank relationship to small business in terms of both credit availability and credit terms such as loan interest rates and collateral requirements (e.g., Petern and Rajan, 1994, 1995; Berger and Udell, 1995; Cole, 1998; Elsas and Krahnen, 1998; Harhoff and Körting 1998a).
It is important to clarify from the outt that our focus here is on the vast majority of small firms
who access to external finance is nearly entirely limited to the private debt markets. For a relativel
y small number of firms, however, the market of choice for external finance is the private equity market. The are firms with very high growth potential, often in knowledge-intensive high tech industries, who principally access the private equity markets for early-pha financing. Becau the high risk firms generally require large injections of external funding relative to insider financing, have little in the way of tangible asts that may be pledged as collateral, and are subject to significant moral hazard opportunities to change projects, they are ill suited for bank financing and thus tend to have low levels of leverage (Gompers and Lerner, 1999; Carpenter and Petern, 2002). The most successful of the firms may obtain significant subquent financing through an IPO, which also facilitates an exit for early-round private equity investors (Carpenter and Petern, 2002). Our focus in this paper is on the importance of relationship lending in the debt gap controversy as it relates to the relatively large majority of firms who are dependent on external private debt, rather than tho in this high growth category with access to external private equity.
Despite the recent academic focus on relationship lending, there is remarkably abnt in the literature a fully satisfying analysis of precily how bank-borrower relationships work.1 It is generally left unspecified whether the primary relationship is between the bank and the firm or between the loan officer and the firm’s owner, who within the bank acquires and stores the relationsh
ip information, and how this information may be disminated within the bank. Relationship information is often “soft” data, such as the information about character and reliability of the firm’s owner, and may be difficult to quantify, verify, and communicate through the normal transmission channels of a banking organisation. We argue that part of the problem is that rearchers in this area have not viewed relationship lending in an organisational context. Relationship lending is associated with a fundamentally different lending process than other transactions-bad lending technologies, such as financial statement lending, ast-bad lending, or credit scoring. Therefore, relationship lending arguably requires a different organisational form. By implication, banks that choo to emphasi relationship lending may be
organid quite differently from banks that do not. In this paper we offer a modest first step toward addressing this gap in the literature by examining relationship lending within the context of a simple model of the lending function. This framework may also be uful in examining the impact of shocks to the banking system on the availability of credit to small business.
The paper is organid as follows. Section 1 offers a brief overview of small firm financing and highlights the important role that financial institutions play in providing external finance to small business. Section 2 categoris lending into four parate technologies, of which relationship lendin
g is one. Relationship lending is compared with the other technologies in terms of how the technologies are implemented and to whom they are targeted. Section 3 examines the organisational issues associated with structuring the lending function by prenting a simple model of bank lending. The analysis suggests that under relationship lending, the accumulation over time of “soft” information by the loan officer creates agency problems throughout the banking organisation that may best be resolved by structuring the bank as a small, cloly-held organisation with few managerial layers. Section 4 us the model to examine the impact of shocks to the economic environment in which banks and small business operate on the availability of credit to small business, including technological innovations (e.g., credit scoring), regulatory regime shifts (e.g., toughened bank supervision), shifts in competitive conditions (e.g., banking industry consolidation), and changes in the macroeconomic environment (e.g., monetary policy shocks). Section 5 concludes.
1. A Picture of Small Firm Finance
Table 1 provides a breakdown of the sources of small firm finance in the United States bad on data from the 1993 National Survey of Small Business Finance (adapted from Berger and Udell, 1998, Table 1). Specifically, it shows book value percentages of private equity and private debt weig
hted to reprent all nonfarm, nonfinancial, nonreal-estate United States business as a whole, using the Small Business Administration classification of firms with fewer than 500 full-time equivalent employees.
>高中地理知识
