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Impact of lending relationships on transaction costs incurred by financial intermediaries: case study in Central Ohio

Nalukenge, Imelda Kibirige
http://rave.ohiolink.edu/etdc/view?acc_num=osu1068473959

Abstract Details

2003, Doctor of Philosophy, Ohio State University, Agricultural, Environmental and Development Economics.
This study applies a transaction costs framework to characterize the performance of financial intermediaries in central Ohio. The study aims at understanding the economic behavior of financial intermediaries serving the financial needs of small business borrowers in the U.S. with intention to transfer this knowledge to improve the performance of financial intermediaries in developing countries. To achieve this aim, a survey of selected credit institutions in central Ohio was undertaken to test the hypotheses postulated by the transaction costs theory. This theory was also used to examine the potential for adoption of promising lender-borrower relationships to mitigate transaction costs incurred in financial intermediation. Transaction costs were measured by the opinions of key lending informants towards the performance of small businesses undertaking loan contracting in credit markets. An ordered multinomial probit analysis was used to estimate the empirical model of transaction costs and hypothesized determinants. Econometric analysis was performed on two sets of equations. The first set analyzed traditional economic determinants of transaction costs, while the second set addressed both traditional and lender-borrower relationship determinants. The chi-square values generated in the analysis enabled the comparison of the significance of differences between the coefficient estimates generated from the two sets of equations. Results show that the model of transaction costs of financial contracting that incorporated lender-borrower relationship variables had a greater explanatory power than that which included purely traditional economic variables. Empirical results also show that relationships between lenders and borrowers are critical to financial transactions because they facilitate credit-risk management decisions, contribute to competitive advantage, and enhance customer retention. This study draws conclusions that transaction costs incurred by financial intermediaries in financial exchange with small businesses positively respond to exchange hazards associated with credit risks in the form of collateral requirements, uncertainty, investment in specific assets, and difficulty in measuring the performance of manpower employed for monitoring small loans. Finally, since relationship lending serves to differentiate efficient loans from inefficient ones, the technique can be a powerful tool to increase efficiency in the delivery of loans to small businesses. Conclusions made in this study are applicable to developing countries.
Lawrence Libby (Advisor)
178 p.
Economics, Agricultural
transaction costs; relationship lending; new institutional economics; financial intermediation; small businesses; ordered multinomial probit

Recommended Citations

Citations

  • Nalukenge, I. K. (2003). Impact of lending relationships on transaction costs incurred by financial intermediaries: case study in Central Ohio [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1068473959

    APA Style (7th edition)

  • Nalukenge, Imelda. Impact of lending relationships on transaction costs incurred by financial intermediaries: case study in Central Ohio. 2003. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1068473959.

    MLA Style (8th edition)

  • Nalukenge, Imelda. "Impact of lending relationships on transaction costs incurred by financial intermediaries: case study in Central Ohio." Doctoral dissertation, Ohio State University, 2003. http://rave.ohiolink.edu/etdc/view?acc_num=osu1068473959

    Chicago Manual of Style (17th edition)

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This open access ETD is published by The Ohio State University and OhioLINK.