Does credit type matter for relationship lending? The special role of bank credit lines

Abstract

Theory suggests that a bank's information production about a borrower varies with credit type. In this paper, I show that credit type plays an important role in relationship lending. Specifically, while repeated borrowing from the same bank reduces information asymmetry thus lowers the cost of loan, I find this effect mainly rises from prior borrowings in form of credit lines instead of other loans. This effect is stronger among more opaque borrowers and is robust to tests accounting for potential endogeneity. My paper highlights the importance of credit types in relationship lending and the special informational role of credit lines.