Bank Relationships and Firm Profitability

Abstract

This paper examines how bank relationships affect firm performance. An empirical implication of recent theoretical models is that firms maintaining multiple bank relationships are less profitable than their single-bank peers. We investigate this empirical implication using a data set containing virtually all Norwegian publicly listed firms for the period 1979-1995. We find that sales profitability is substantially higher if firms maintain only a single bank relationship. Furthermore, we observe that firms switching a single bank relationship improve their sales profitability.