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Relationship Lending and Firms’ Leverage: Empirical Evidence in Europe
Author(s) -
Guida Roberto,
Sabato Valentina
Publication year - 2017
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12109
Subject(s) - closeness , leverage (statistics) , business , monetary economics , positive relationship , empirical evidence , industrial organization , economics , computer science , psychology , mathematical analysis , social psychology , philosophy , mathematics , epistemology , machine learning
Using a novel measure of relationship lending based on the kind of information banks use to assess borrowers, we investigate the role of relationship lending in firms’ capital structure. Using a unique dataset of European manufacturing firms, we measure relationship lending based on three dimensions (closeness, soft information, exclusivity) and relate them to firms’ leverage. Overall our results support the hypothesis that supply factors matter. We find that the actual use of soft information increases leverage and only firms without soft information‐intensive relationships increase their leverage through multiple relationships. However, the effect of relationship lending on leverage varies across countries.