“Time for a Change”: Loan Conditions and Bank Behavior when Firms Switch Banks


  • Ioannidou is with CentER—Tilburg University and Ongena is with CentER—Tilburg University and CEPR. We are particularly grateful to Campbell Harvey (the Editor), two anonymous referees, an Associate Editor, Allen Berger, Lamont Black, Martin Brown, Riccardo Calcagno, Elena Carletti, Vicente Cuňat, Jan de Dreu, Hans Degryse, Xavier Freixas, Reint Gropp, Giuliano Iannotta, Matti Keloharju, Moshe Kim, Michal Kowalik, Jan Pieter Krahnen, Jose Lopez, Bert Menkveld, Matti Suominen, Tuomas Takalo, Greg Udell, Wolf Wagner, Maurizio Zanardi, Christian Zehnder, and seminar participants at the 2008 American Finance Association Meeting (New Orleans), the 2008 Financial Intermediation Research Society Meetings (Anchorage), the 2007 European Finance Association Meeting (Ljubliana), the 2007 Financial Management Association Meetings (Orlando), the 2007 Financial Management Association Europe Meetings (Barcelona), the 2007 CEPR-ESSFM Meeting (Gerzensee), the 2007 ProBanker Conference (Maastricht), CentER—Tilburg University, the Central Bank of Sweden, the Federal Reserve Board, Free University of Amsterdam, Helsinki School of Economics and Swedish School of Economics, Pompeu Fabra University, and the Universities of Frankfurt and Zurich for many helpful comments. We would like to thank the Bank Supervisory Authority in Bolivia, and in particular Enrique Hurtado, Juan Carlos Ibieta, Guillermo Romano, and Sergio Selaya for providing the data and for very encouraging support, Jan de Dreu for excellent research assistance, and Jeanne Bovenberg-Meyer for very helpful editorial assistance. Ongena acknowledges the hospitality of the European Central Bank and the Swiss National Bank while writing this paper.


This paper studies loan conditions when firms switch banks. Recent theoretical work on bank–firm relationships motivates our matching models. The dynamic cycle of the loan rate that we uncover is as follows: a loan granted by a new (outside) bank carries a loan rate that is significantly lower than the rates on comparable new loans from the firm's current (inside) banks. The new bank initially decreases the loan rate further but eventually ratchets it up sharply. Other loan conditions follow a similar economically relevant pattern. This bank strategy is consistent with the existence of hold-up costs in bank–firm relationships.