The Benefits of Relationship Lending in a Cross-Country Context: A Meta-Analysis

Relationship lending helps reduce asymmetric information, which potentially creates benefits for borrowers. However, empirical evidence is mixed. We conduct a meta-analysis to summarize and explain the heterogeneity in the results in the literature using hand-collected information from 101 studies in the U.S., Europe, Asia and Latin America from 1970-2010. We find that strong relationships are generally beneficial for borrowers but lending outcomes differ across the relationships’ dimensions. Long-lasting, exclusive and synergy-creating bank relationships are associated with higher credit volume and lower loan rates. These benefits are more likely in the U.S. and in countries where bank competition is high. They are lower the higher the deposits-to-GDP ratio and the higher the importance of SMEs in an economy, suggesting that a higher prevalence of relationship lending does not necessarily come along with higher benefits for borrowers.