The impact of capital market competition on relationship banking: Evidence from the Japanese experience

Donald Fraser, Sangghon Rhee, G Hwan Shin

Research output: Contribution to journalArticleResearchpeer-review

5 Citations (Scopus)


Disagreement exists about the potential effects of changes in competition on relationship lending. Boot and Thakor (2000) predict that an increase in capital market competition should lead to a reduction in relationship lending; however, Dinc (2000) predicts that greater capital market competition should increase relationship lending. Thus far, data limitations have precluded empirical tests of these competing hypotheses. In this study, we use a unique data set drawn from the deregulation of the Japanese financial system. Our findings show that increased capital market competition is associated with reduced relationship lending. However, the effect differs according to the maturity of the loans; increased capital market competition is associated with reduced long-term, but greater short-term, relationship lending.
Original languageEnglish
Pages (from-to)411 - 426
Number of pages16
JournalJournal of Empirical Finance
Issue number4
Publication statusPublished - 2012
Externally publishedYes

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