What Is Relationship Banking?
Relationship banking may be defined as the provision of financial services by a financial intermediary on the basis of long-term investment in obtaining firm-specific information through multiple interactions with diverse financial services (Boot, 2000). Banks have advantages in gathering/producing information about their clients, thanks mainly to the nature of information production. First, there are economies of scale: the cost of information gathering/production is reduced by learning through repeated transactions. Second, there may also be economies of scope: banks can utilize the information obtained on a type of service for other services (Petersen and Rajan, 1994). Third, financial contracts are typically incomplete: banks and customers can build commitment and reputation through repeated transactions across services, often allowing the low-cost renegotiation of debt contracts (Lehmann and Neuberger, 2001). This characteristic of information production makes it natural for banks
