Estimation the Effect of Lending Relationships Impact on Lending Transaction Costs: Case Study of Iranian Banks’ Branches Located in Tehran

Document Type : Research Paper


1 Associate Prof. in Management, Faculty of Management, Ilam University, Ilam, Iran

2 Prof. in Management, Faculty of Management, Tehran University, Tehran, Iran

3 Ph.D. Candidate in Financial Economics, Allame Tabatabai University, Tehran, Iran


This study in first stage, describes the transaction costs imposed on credit institutions‌ and the factors affecting them from the traditional model of transaction cost economics and also introduced the "relationship lending" as a variable that points to reduce the information asymmetry between the borrower and the credit institute. The impact of this variable using Ordered Multinomial Probit Model on the Williamson model will be examined. Credit institutes under this study have been collected as a random sample from banks in Tehran .These banks had been authorized by central bank of Iran till March 2012. The results shows that with the introduction of the independent variable "lending relationships" the final effect of the independent variables "investment in specific assets", "special collaterals", "degree of uncertainty for the credit institute" and "difficulty in measuring employee performance" on variable of transaction costs of lending will be reduced.


Main Subjects

Ahmadi Kaliji, S. & Darijani, A. (2012). Surveying Transaction Costs of Obtaining Facilities in Agricultural Bank (Case Study: Golestan Province). Agricultural Economic and Development, 22(87), 23-39. (in Persian)
Anderson, E., Narus, A. (1990). A model of the Distributor firm and manufacturer firm working partnerships. Journal of Marketing, 48, 62-74.
Artz, K. & Brush, T. (1999). Asset Specificity, Uncertainty and Relational Norms: An Examination of Coordination Costs in Collaborative Strategic Alliances. Journal of Economic Behavior & Organization, 41, 337-362.
Behr, P., Entzian, A., & Güttler, A.(2011). How Do LendingRelationships Affect Access to Credit and Loan Conditions in Microlending? Journal ofBanking & Finance, 35(8), 2169-2178.
Berger, A., Klapper, L. & Udell, G. (2001). The Ability of Banks to Lend to InformationallyOpaque Small Businesses. Journal of Banking and Finance, 25 (12), 2127-2167.
Canback. S. (1998).Transaction Cost Theory and Management Consulting: Why Do Management Consultants Exist? Working paper.
Coase, R. H. (1985). The New Institutional Eco nomics. Journal of Institutional and Theoretical Economics, 140, 229-231.
Cole, R. (1998). The Importance of Relationships to the Availability of Credit. Journal of Banking and Finance, 22(8-6), 959-977.
Gabre-Madhin, E. (2001). Market Institutions, Transaction Costs, and Social Capital in the Ethiopian Grain Market. Washington, D.C., International Food Policy ResearInstitute.
Gray, R. (1993). Transaction Costs and New Institutions: Will CBLTs have a Role in the Saskatchewan Land Market? Canadian Journal of Agricultural Economics, 42, 501-509.
Greene, W. H. (1997). Econometric Analysis. Prentice Hall.
Harhoff, D. & Korting, T. (1998b). How Many Creditors does it take to Tango? Mimeo, Berlin.
Henry, S. (2010). Relationship lending, transactional costs & lending interest rates of commercial banks in Uganda. Makerere University.
Hosseini, S. S., Khaledi, M. (2004). Transaction Cost of Providing Agricultural Credit for Rice Producers in Iran. The Iranian J. Food Agric. Sci., 57, 38-50.
(in Persian)
Hosseini, S. S., Khaledi, M., Hassanpour, E. & Ghorbani, M. (2005). Assessing Transaction Costs in Financial Markets in Rural IranResearch. Project in Bank Keshavarzi, Tehran, Iran. (in Persian)
Hosseini, S., Khalidi, M., Ghorbani, M. & Hassanpour, E. (2009). Estimation The Transaction Costs of Agricultural Bank Facilities in Iran's Rural Areas. Journal of Economics and Agricultural Development, 23(2), 36-45.
(in Persian)
Levine, R. (1997). Financial Development and Economic Growth: Views and Agenda. Journal of Economic Literature, 35(2), 688-726.
Maddala, G. (1996). Statistical Methods in Finance. Amsterdam, New York: Elsevier. 
Moschandreas, M. (1997). The role of opportunism in transaction cost economics. Journal of economic issues, 31(1), 39-57.
Nalukenge, I.K. (2003). Impact of Lending Relationships on Transaction Costs Incurred by Financial Intermediaries: Case Study in Centeral Ohio. Thesis for The Degree Doctor of philosophy, Graduate School of The Ohio State Univetsity.
Natamba, B., Mangeni P., Nakabuye, Z., Brendah, A., Agasha E. (2013). Transaction costs and outreach of microfinance institutions in Uganda. Issues in Business Management and Economics, 6, 132-125.
North, D. (1990). Institutions, Institutional Change and Economic Performance. Cambridge University Press, Cambridge, Mass.
Pearce, D. W. (1996). Macmillan Dictionary of Modern Economics. Third Edition, Macmillan Press LTD.
Peterson, M. & Rajan, R. (1995).The Effect of Credit Market Competition on Lending Relationships. The Quarterly Journal of Economics, 110(2), 407-443.
Peterson, M. & Rajan, R. (1997). Trade Credit: Theories and Evidence. Review ofFinancial Studies, 10(3), 661-691.
Rajan, R. G. (1995). Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt. The Journal of Finance, 47(4), 1400-1367.
Rubin, P. (1990). Managing Business Transactions: Controlling the Costs of Coordinating,Communicating, and Decision making. New York: Free Press.
Stiglitz, J. & Weis, A. (1981). Credit Rationing in Markets with Imperfect Information. American Economic Review, 71 (3), 393-419.
Williamson, O. (1985). The Economic Institutions of Capitalism, Firms, Markets, Relational Contracting. New York: Free Press.
Zaheer, A. & Venkatraman, N. (1995). Relational governance as an Interorganizational Strategy: an Empirical Test of the Role of Trust in Economic Exchange. Strategic Management Journal, 16, 373–392.