Journal of Financial Services Research

, Volume 31, Issue 2–3, pp 153–171 | Cite as

The Benefits of Relationship Banking: Evidence from Small Business Financing in Finland



Using unique small business credit-file data from a major Finnish bank, I analyze how relationship characteristics are associated with loan interest rates. Data includes the effective loan rate and variables that describe the duration and scope of relationship, collateralization, firm characteristics, bank’s internal risk rating, and loan characteristics. The results show that longer duration tends to lower the cost of credit and that a long-term bank/firm relationship is beneficial especially to high-risk firms. As the relationship matures, the loan premiums for high-risk firms decrease at higher rate than for low-risk firms.


Relationship banking relationship lending small business finance loan pricing collateral 



I am grateful for the comments and suggestions made by Takeo Hoshi, Jukka Perttunen, Juha-Pekka Kallunki, Markku Rahiala, Jonathan A. Scott, Hannu Schadéwitz, Sandra Sizer, and anonymous referees. The following foundations supported this work with research grants; Academy of Finland (Finland), American-Scandinavian Foundation (New York, USA), Emil Aaltosen Säätiö (Finland), the Finnish Cultural Foundation (Finland), Ella ja Georg Ehrnroothin Säätiö (Finland), Jenny ja Antti Wihurin rahasto (Finland), Marcus Wallenbergin Liiketaloudellinen Tutkimussäätiö (Finland), Kaupallisten ja teknillisten tieteiden tukisäätiö (Finland), Liikesivistysrahasto (Finland), Osuuspankkiryhmän Tutkimussäätiö (Finland), Oulun yliopiston Tukisäätiö (Finland), Säästöpankkien Tutkimussäätiö (Finland), Tauno Tönningin Säätiö (Finland) and Yrjö Uiton Säätiö (Finland). I greatfully acknowledge these foundations.


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© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.Department of Accounting and Finance, Faculty of Economics and Business AdministrationUniversity of OuluOuluFinland

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