Bank size and lending relationships in Japan

Hirofumi Uchida, Gregory F. Udell, Wako Watanabe

Research output: Contribution to journalArticle

52 Citations (Scopus)

Abstract

Current theoretical and empirical research suggests that small banks have a comparative advantage in processing soft information and delivering relationship lending. The most comprehensive analysis of this view found using US data that smaller SMEs borrow from smaller banks and smaller banks have stronger relationships with their borrowers [Berger, A.N., Miller, N.H., Petersen, M.A., Rajan, R.G., Stein, J.C., 2005. Does function follow organizational form? Evidence from the lending practices of large and small banks. J. Finan. Econ. 76, 237-269]. We employ essentially the same methodology as Berger et al. on a unique Japanese data set and find results that are quite interesting from an international comparison point of view. We find, like Berger et al. in the US, that larger firms tend to borrow from larger banks, and that smaller banks have stronger relationships with their borrowers. However, additionally we find that the former result is not due to larger firms being more transparent in terms of their financial statements. These results imply that although small banks' comparative advantage in relationship lending is likely to be universal, large banks may not necessarily have a comparative advantage in extending transactions-based lending. J. Japanese Int. Economies 22 (2) (2008) 242-267.

Original languageEnglish
Pages (from-to)242-267
Number of pages26
JournalJournal of The Japanese and International Economies
Volume22
Issue number2
DOIs
Publication statusPublished - 2008 Jun 1

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Keywords

  • Banks
  • Japan
  • Relationship lending
  • Small and medium enterprises
  • Transactions-based lending

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics
  • Political Science and International Relations

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