Relationship banking: The borrower’s incentives channel
Abstract
What is the impact of a prior banking relationship on a borrower’s incentives to avoid default? To answer this question, we exploit a unique institutional setting and data on 149,230 mortgage loans tracked for twenty four months. We find that the presence of a relationship diminishes borrower’s default risk by approximately 4%, attributable exclusively to the value of the relationship for the borrower. This effect persists during the notable surge in loan defaults during COVID-19 and is even more pronounced for borrowers affected by a natural disaster, as well as among wealthier and married male borrowers.
Fields of Study & Subjects
Banking stability
regulation
efficiency
Islamic Finance and Banking Studies
Corporate Finance and Governance
Publication details
- Journal / source
- Journal of Corporate Finance
- Publisher
- Elsevier BV
- Volume
- 101
- Pages
- 103045–103045
- Publication date
- 3 July 2026
- Language
- EN