Banking relationships and the effect of monitoring on loan pricing

David W. Blackwell, Drew B. Winters

Research output: Contribution to journalArticlepeer-review

114 Scopus citations


In a sample of bank loans to small firms we find a positive relation between the bank's monitoring effort and the loan's interest rate. We also observe an inverse relation between the closeness of banking relationships and interest rates. Further, we see that banks less frequently monitor firms with whom they have closer relationships. We conclude that banking relationships are valuable because firms can significantly reduce their costs of capital by establishing and maintaining close ties to a particular bank. As firms successfully complete loan transactions with banks, banks monitor them less frequently and, ultimately, charge them lower interest rates.

Original languageEnglish
Pages (from-to)275-289
Number of pages15
JournalJournal of Financial Research
Issue number2
StatePublished - Jun 1997

ASJC Scopus subject areas

  • Accounting
  • Finance


Dive into the research topics of 'Banking relationships and the effect of monitoring on loan pricing'. Together they form a unique fingerprint.

Cite this