In this paper we study how does bankââ?¬â??borrower relationships benefits differ depending on three factors identified in the theoretical literature: verifiability of information, bankââ?¬â?¢s organizational structure and interbank competition. We employ an empirical model that simultaneously accounts for all three of these factors to analyse how relationship lending affects credit cost. Our key result is that that borrowers with long relationship length are likely to be captured and deprived of larger rents and that the diversification of banking products moderate the hold-up problem. These latter findings suggest the possibility that relationship borrowers may suffer from capture effects. Moreover, we find evidence that close relationships benefit on credit cost is larger in a more competitive loan market. So, banks consider relationships as a device for product differentiation.
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