VGSF - WU Vienna - LC

Artashes Karapetyan, BI Norwegian Business School

Campus WU D4.0.019 12:00 - 13:30

Organizer WU Vienna

The Fin­ance Brown Bag Sem­inar is held by the In­sti­tute for Fin­ance, Bank­ing and In­sur­ance (WU Vi­enna) and the Vi­enna Gradu­ate School of Fin­ance (VGSF). It serves as a present­a­tion plat­form for PhD stu­dents, fac­ulty mem­bers, and vis­it­ors. An over­view of BBS on the web­site of the In­sti­tute for Fin­ance, Bank­ing and In­sur­ance.

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June 18th, 2018, 12:00-13:30, D4.0.019

Artashes Kara­petyan (BI Nor­we­gian Busi­ness School)
Title: "To Ask or Not To Ask? Col­lat­eral versus Screen­ing in Lend­ing Re­la­tion­ships"

Ab­stract

Us­ing a com­pre­hens­ive loan-­level data­set, we study the im­pact of bank-firm re­la­tion­ships on col­lat­eral re­quire­ments both at the be­gin­ning of a re­la­tion­ship and over time. First, we ex­ploit the EBA cap­ital ex­er­cise, a quasi-nat­ural shock that re­quired in­creased cap­ital re­quire­ments for a num­ber of bank­ing groups in the European Union. This ex­per­i­ment ceteris paribus makes se­cured lend­ing cheaper vis-`a-vis un­se­cured lend­ing for the af­fected banks, since se­cured loans re­quire less reg­u­lat­ory cap­ital. We find that re­l­at­ive to the con­trol group, the af­fected banks en­gaged in more col­lat­er­al­ized lend­ing. However, we fur­ther find this ef­fect is less pro­nounced for re­la­tion­ship bor­row­ers. Second, ex­tend­ing the ana­lysis to span nine years of data, we doc­u­ment that to loyal bor­row­ers with long re­la­tion­ship po­ten­tial, the bank is more likely to of­fer un­se­cured credit at the be­gin­ning of the re­la­tion­ship, com­ple­ment­ing ex­ist­ing evid­ence that col­lat­eral re­quire­ments de­cline over the course of the re­la­tion­ship. The res­ults sug­gest that re­la­tion­ship bank­ing is im­port­ant for al­le­vi­at­ing credit ac­cess – both dur­ing hard times for banks, as well as at the be­gin­ning of bor­row­ers' lives - espe­cially for small, col­lat­er­al-­con­strained busi­nesses.



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