Lending relationships and loan contract terms

Sreedhar T. Bharath, Sandeep Dahiya, Anthony Saunders, Anand Srinivasan

Research output: Contribution to journalArticlepeer-review

476 Scopus citations


We find that repeated borrowing from the same lender translates into a 10-17 bps lowering of loan spreads and that relationships are especially valuable when borrower transparency is low. These results hold using multiple approaches (propensity score matching, instrumental variables, and treatment effects model) that control for the endogeneity of relationships. We also provide a demarcation line between relationship and transactional lending. Spreads charged for relationship loans and nonrelationship loans are statistically identical if the borrower is in the largest 30 by asset size; has public rated debt; or is part of the S&P 500 index. Past relationships reduce collateral requirements and are also associated with obtaining larger loans. Our results imply that, even for firms that have multiple sources of outside financing, borrowing from a prior lender obtains better loan terms.

Original languageEnglish (US)
Pages (from-to)1141-1203
Number of pages63
JournalReview of Financial Studies
Issue number4
StatePublished - Apr 2011
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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