Abstract
Does relationship bank oversight reduce firm default risk and improve firm operational efficiency? I find that a new loan from a relationship bank reduces the default probability and increases the efficiency of a borrowing firm, benefiting both banks and borrowers. Moreover, inefficient and less creditworthy firms experience the highest reductions in their default risks and improvements in their efficiencies in the years following new relationship bank loans. Further, these benefits are disrupted when the relationship bank is acquired.
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