Lending relationship and firm cost of hedging.

Abstract

This research will contribute to the literature on bank relationship by analyzing not only financial intermediation activity (loans and deposits), but also hedging services provided by banks to nonfinancial firms. We will combine detailed data at the bank-firm level on both loans and over-the-counter (OTC) derivatives in Brazil. Our data is unique in the sense that it allows us to extend the notion of bank relationship to a broader set of financial services and investigate the interplay between lending and hedging services.We will investigate whether the breadth and depth of the bank-firm relationship in the credit market affects the cost of hedging for non-financial firms. More specifically, we investigate whether the spread charged on non-deliverable currency forwards (NDFs) depends on the existence of a lending relationship with the bank, as well as the size and duration of this relationship. (AU)