Abstract
How do banks react to increased interbank competition?Recent banking theory offers conflicting predictions about the impact of competition on bank orientation i L H WKH choice of relationship based versus transactional banking i DQG EDQN LQGXVWU specialization.We empirically investigate the impact of interbank competition on bank branch orientation and specialization.We employ a unique data set containing detailed information on bank-firm relationships and industry classification.We find that bank branches facing stiff local competition engage relatively more in relationship-based lending but specialize somewhat less in a particular industry.Our results illustrate that competition and relationships are not necessarily inimical.
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