Abstract
In this paper, we examine the significance and uniqueness of the individual-pair relationship cultivated through repeated loan interactions by the firm’s borrowing manager and the bank’s loan officer. Using a hand-collected dataset of borrowing manager and loan officer information, we find that individual-pair relationship loans result in a reduction of the cost of debt of between 7-27 basis points. We also document that the economic impact of individual-pair relationships exists even when other types of lending relationships, e.g., institutional pairs and social ties, are taken into consideration. Lastly, we find evidence that individual-pair relationships are especially important when either the firm has a high level of information asymmetry, the bank is smaller, or loan officers have slimmer portfolios. Cumulatively, our results highlight the value of sustained professional engagement between two individuals in the lending process.
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