BA-FI3: Financial Intermediation: Banking
Relationship Lending and the Quality of Social Interactions: Evidence from Small Business Lending in Germany
1Ruhr-Universität Bochum, Deutschland; 2University of Applied Sciences Europe
This paper analyzes how the quality of social interactions shapes the benefits of lending relationships between SMEs and banks in the bank-based system of Germany. Using unique survey data of 715 SMEs from 2008 and 2012, we ﬁnd lending relationships built on high quality social interactions between the SME-management and a bank’s loan officer to have a positive impact on the SME’s financing conditions. Lending relationships based on high levels of perceived trust and satisfaction have lower cost of debt, an enhanced credit availability, more financing and lender choices, face lower collateral requirements and achieve better rating decisions, even when we explicitly control for information sharing of the SME. Furthermore, consistent with the view that relationship lending provides a kind of liquidity insurance our findings suggest that the benefits of relationship lending are even more pronounced in times of crises.
Innovating Banks And Local Lending
1HHU Düsseldorf; 2Universität Leipzig, Deutschland
We study the effects of financial and technological innovation by banks on local competition for deposits and credit supply. Banks that innovate increase their local market power by gaining deposits in a zero sum game at the expense of local non-innovating competitors. Innovative banks make use of both the additional liquidity as well as process innovations itselves and expand aggregate local mortgage lending. Banks allocate their additional funding efficiently with loan performance improving for banks that innovate. We employ two instrumental variable approaches that relate the number of patents awarded to a bank holding company to the human capital available to the bank as well as to the leniency of patent examiners to identify the causal effect of bank innovation on deposits and lending.
Measuring the Effect of Digitalization Efforts on Bank Performance
Westfälische Wilhelms-Universität Münster, Deutschland
There is an ongoing debate on whether digitalization can increase bank performance and more specifically which technologies do so. The debate to date suffers from a lack of data. We suggest new measures of digitalization efforts in banks by applying text mining methods to annual reports. Our results on all banks listed on the New York Stock Exchange imply that digitalization efforts improve performance for some successful cases but not in all cases. Practitioners should therefore carefully monitor the implementation of digitalization efforts. Considering technologies, business intelligence and IT infrastructure are most crucial in generating profits. Distribution channels are less important in comparison.