Information Asymmetry, Relationship Banking and Financing Costs of SME's

We focus on the determinants and potentially associated benefits of relationship banking. Based on existing literature and the unique role intangible assets might play regarding asymmetric information, we derive three testable predictions. Using rich data on firm-bank relationships in Germany, we show that: Firstly, intangible assets can be used to proxy asymmetric information but do not prevent firms to finance externally. Secondly, firms' share of intangible assets statistically significantly determines firms' choice of an exclusive and persistent bank relation. Finally, relationship banking is (potentially) associated with beneficial financing conditions.