The ability of banks to lend to informationally opaque small businesses

We test hypotheses about the effects of bank size, foreign ownership, and d istress on lending to informationally opaque small firms using a rich new d ata set on Argentinean banks, firms, and loans. We also test hypotheses abo ut borrowing from a single bank versus multiple banks. Our results suggest that large and foreign-owned institutions may have difficulty extending rel ationship loans to opaque small firms. Bank distress appears to have no gre ater effect on small borrowers than on large borrowers, although even small firms may react to bank distress by borrowing from multiple banks, raising borrowing costs and destroying some relationship benefits. (C) 2001 Publis hed by Elsevier Science B.V.