Relationship Capital and Financing Decisions

Thomas Geelen, Erwan Morellec, Natalia Rostova

Research output: Working paperResearch


Lending relationships matter for firm financing. In a model of debt dynamics, we study how lending relationships are formed and how they impact leverage and debt maturity choices. In the model, lending relationships evolve through repeated interactions between firms and debt investors. Stronger lending relationships lead firms to adopt higher leverage ratios, issue longer term debt, and raise funds from non-relationship lenders when relationship quality is sufficiently high. The maturity of debt contracts issued to non-relationship investors is higher than that of relationship investors. Negative shocks to relationship lenders drastically affect the financing choices of firms with intermediate relationship quality.
Original languageEnglish
Place of PublicationGeneva
PublisherSwiss Finance Institute
Number of pages51
Publication statusPublished - 15 Dec 2021
SeriesSwiss Finance Institute Research Paper Series


  • Relationship lending
  • Capital structure
  • Debt maturity
  • Default

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