Time for a change: Loan conditions and bank behavior when firms switch banks

V. Ioannidou, S. Ongena

Research output: Contribution to journalArticleScientificpeer-review

107 Citations (Scopus)

Abstract

This paper studies loan conditions when firms switch banks. Recent theoretical work on bank–firm relationships motivates our matching models. The dynamic cycle of the loan rate that we uncover is as follows: a loan granted by a new (outside) bank carries a loan rate that is significantly lower than the rates on comparable new loans from the firm's current (inside) banks. The new bank initially decreases the loan rate further but eventually ratchets it up sharply. Other loan conditions follow a similar economically relevant pattern. This bank strategy is consistent with the existence of hold-up costs in bank–firm relationships.
Original languageEnglish
Pages (from-to)1847-1877
JournalJournal of Finance
Volume65
Issue number5
Publication statusPublished - 2010

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