Abstract

Recent banking theory holds that durable firm–bank relationships are valuable to both parties. This paper uses the contract-specific loan records of a 19th-century U.S. bank and shows that firms with extended relationships received three principal benefits. First, firmswith extended relationships had lower credit costs. Second, long-term customers provided fewer personal guarantees, which were an alternative to collateral. Third, long-term customers were more likely to have loan terms renegotiated during a credit crunch. These findings support theories that banks realize cost advantages through the use of proprietary information.

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Additional Information

ISSN
1538-4616
Print ISSN
0022-2879
Pages
pp. 485-505
Launched on MUSE
2003-07-17
Open Access
No
Archive Status
Archived 2007
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