THE EFFECT OF CREDIT MARKET COMPETITION ON LENDING RELATIONSHIPS

This paper provides a simple framework showing that the extent of comp etition in credit markets is important in determining the value of len ding relationships. Creditors are more likely to finance credit-constr ained firms when credit markets are concentrated because it is easier for these creditors to internalize the benefits of assisting the firms . The paper offers evidence from small business data in support of thi s hypothesis.