An important theoretical literature motivates collateral as a mechanism that mitigates adverse selection, credit rationing, and other inefficiencies that arise when borrowers hold ex ante private information. There is no clear empirical evidence regarding the central implication of this...

Explores the role of bank-borrower relationships in small firm finance. Focus is on the availability and terms of lines of credit approved by banks. Data were obtained from the U.S. National Survey of Small Business Finances conducted in 1988-89. Telephone interviews were conducted with...