Abstract:
Using a sample of 432564 lending transaction data in a Province of China during 2009~2014, this paper studies how the relationship lending and bank competition affect credit risk for SMEs on the condition of asymmetric information. We find the relationship lending has positive impact on the credit risk for SMEs, but the bank competition has negative impact. However, when the heterogeneity of SMEs is considered, the effect of relationship lending and bank competition on credit risk is different. From the influence of channel, the relationship lending could alleviate the adverse selection, but lead to hold-up problem and ultimately increase the credit risk for SMEs. The bank competition could relieve the hold up problem, reduce the loan cost and ultimately mitigate the credit risk for SMEs. It is important to improve competition mechanism and strengthen loan management in order to reduce the credit risk for SMEs.
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