Abstract

Relationship banking has emerged as an important mechanism through which banks, especially the smaller ones, overcome problems associated with information asymmetry. Relationship banking also creates value for the borrowing firm through a number of channels such as more chances of loan availability, lower interest rate, and less collateral requirements. In this paper, we provide an overview of the recent literature on relationship banking and its impact on firm value. We also discuss different dimensions of relationship banking to highlight how the role of relationship banking changes in information generation process under different circumstances. Finally, we identify potential areas for future research in this area.

Key words: Banking relationship, firm value, multiple banking relationships, length of relationship, deregulation and technological change.