DP1917 Lending Relationships in Germany: Empirical Results from Survey Data

Author(s): Dietmar Harhoff , Timm Körting

Publication Date: June 1998

Keyword(s): Credit Rationing , Financial Intermediation , Lending relationships

JEL(s): D45 , G21

Programme Areas: Financial Economics , Industrial Organization

Link to this Page: www.cepr.org/pubs/dps/DP1917.asp

We examine empirically the role of lending relationships in determining the collateral requirements, costs and availability of external funding. The data originates from a recently concluded survey of small- and medium-sized German firms. In our descriptive analysis, we explore the borrowing patterns and the concentration of borrowing from financial institutions. Using data on line of credit (L/C) interest rates, collateral requirements, and the firms’ use of fast payment discounts we find that relationship variables may have some bearing on the price of external funds, but much more so on loan collateralization and availability. Firms in financial distress face comparatively high L/C interest rates and reduced credit availability.