The Number of Bank Relationships and the Cost of Borrowing: An Empirical Study

Abstract

We construct a unique dataset containing 17.516 Portuguese small, medium and large firms and spanning from 1996 to 2004. Using this dataset we study the impact of the number of banks a firm borrows from on the cost of bank loans. We find that the average Portuguese firm borrows from three banks. The firm’s interest rate on bank loans lowers as the firm borrows from more banks, controlling ∗This is a preliminary version of this study. We are thankful to Pedro Portugal, Miguel Ferreira, Jorge Farinha and seminar participants at the XLI EWGFM meeting, at Banco de Portugal, at Faculdade de Economia da Universidade do Porto and at the University of Bonn for useful comments. The analyses, opinions and findings of this paper represent the views of the authors, which are not necessarily those of Banco de Portugal. †Presenting author. Email: dbonfim@bportugal.pt. Address: Banco de Portugal, Economic Research Department, Av. Almirante Reis, 71 6 1150-012 Lisbon, Portugal. Phone: +351 213130865. ‡Email: qinglei.dai@fe.unl.pt. Address: Universidade Nova de Lisboa, Faculdade de Economia, Rua Marques da Fronteira 20, 1099-038 Lisboa, Portugal. Phone: +351 213822706. §Email: francesco_franco@fe.unl.pt. Address: Universidade Nova de Lisboa, Faculdade de Economia, Campus de Campolide, 1099-032 Lisboa, Portugal. Phone: +351 213801666.