Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/310433 
Year of Publication: 
2024
Series/Report no.: 
Working Paper No. 4/2024
Publisher: 
Norges Bank, Oslo
Abstract: 
Theory suggests that by lending to a firm, inside banks gain an informational advantage over non-lender outside banks. This informational gap hinders borrowers from switching lenders due to a winner's curse faced by competing outside banks, leading to hold-up problems. In this paper, we show that firms can reduce this informational gap by forming deposit relationships with outside banks, thereby attenuating hold-up. Using unique data on the deposit and lending relationships of all firm-bank pairs in Norway, we find that having a deposit relationship with non-lender outside banks significantly increases a firm's likelihood of switching lenders. Furthermore, firms that have a prior deposit relationship with new lenders obtain significantly better loan conditions upon switching. In line with informational hold-up theory, these effects are driven by reduced information asymmetries, not cross-selling. Our findings have important implications for open banking and hold-up problems in the loan market.
Subjects: 
Hold-Up problems
Deposit relationships
Lending relationships
Hold-up problems
Lender switching
Information asymmetries
JEL: 
G21
D82
L11
L13
Persistent Identifier of the first edition: 
ISBN: 
978-82-8379-312-3
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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