Bank-firm Relationships Research Articles

Cash policy and the bank-firm relationship

Bank health affects a firm's cash holding - a healthy bank can result in either more (because of the influential bank power) or less (because of precautionary motive) firm-level cash holding. Motivated by the contrasting views in the existing literature, this paper investigates whether bank policy determines firm-level cash policy. Using Japanese firm-level data over 2000–2014, we find that the difference in bank health effects stems from the firm's investment status. We find that healthy banks induce growing firms to hold more cash while declining firms hold more cash when borrowing from unhealthy banks. Furthermore, we find that banks with more liquidity also induce their growing borrowers to have more cash. Our results are robust to the endogeneity of bank selection. Our study indicates that bank-firm relationship can serve as an advance-signalling device for a firm's shareholder-wealth-maximizing investments and contributes to the literature that explains the cash holding puzzle.

Lending relationships, credit ratings and bank loan spreads: evidence from Indonesian listed companies

PurposeThis study examines the impact of firm-bank relationships on bank loan spreads and the mitigating role of firm credit ratings on that impact.Design/methodology/approachThe study sample consists of Indonesian publicly listed companies for the period 2006 to 2016; bank-loan data was extracted from the Loan Pricing Corporation Dealscan database. For the degree of firm-bank relationships, the data on each loan is manually computed, using five different methods taken from Bharath et al. (2011) and Fields et al. (2012). All of the regression analyses are controlled for the year fixed effects, heteroscedasticity, and firm-level clustering. To address the endogeneity issues, this study uses several methods, including partitioning the sample, running nearest-neighbour and propensity score matching tests, and using instrumental variables in two-staged least-squares regression models.FindingsIn line with relationship theory and in opposition to the hold-up argument, this study finds that lending relationships reduce bank loan spreads and that the impact is more noticeable among non-rated Indonesian firms. Specifically, each additional unit in the total number of years of a firm-bank relationship and the number of previous loan contracts with the same bank are associated with 7.34 and 9.15 basis-point decreases, respectively, in these loan spreads.Practical implicationsCorporations and banks should maintain close, long-term relationships to reduce the screening and monitoring costs of borrowing. Regulators should create public policies that encourage banks to put more emphasis on relationships in their lending practices, especially in relation to crisis-prone companies.Originality/valueTo the best of the authors’ knowledge, this is the first study to examine the impact of lending relationships on bank loan spreads in Indonesia. The study offers insights on banking relationships in emerging markets with concentrated banking industries, underdeveloped capital markets and prominent business-group affiliations.

Sorting Out the Real Effects of Credit Supply

We document that banks which cut lending more during the Great Recession were lending to riskier firms. To explain this evidence, we build a competitive matching model of bank-firm relationships in which risky firms borrow from banks with low holding costs. Based on default probabilities and equilibrium loan rates, we use our sorting model to recover the latent bank holding cost distribution. The measure of banks with low holding costs dropped during the Great Recession. This credit supply shift conservatively accounted for around 50% of the decline in corporate loans over this period. Our attribution cannot be captured by panel regression estimates from the bank lending channel literature.

Arm's Length Banking and Firm Innovation: Evidence from Korea

This study explores the effect of bank loans subdivided in arm’s length banking and relational banking on innovation of Korean listed firms. I find that bank loans from relational banking negatively affect firm innovation whereas those from arm’s length banking positively affect it. This finding implies that diverse opinions among banks may increase the probability of financing for innovation. This finding also remains robust in Tobit, Poisson, and negative binomial regressions, in using reconstructed sample by a propensity score matching, and in two-stage regressions using an instrumental variable. This finding also occurs both in high technology and non-high technology firms. However, I find no significant relationship between bank loans and innovation of Chaebol firms. This study provides managers or academic researchers with valuable implications for an appropriate bank-firm relationship for promoting firm innovation.

The time has come for banks to say goodbye: New evidence on bank roles and duration effects in relationship terminations

Examining a loan-level matched sample of Japanese banks and firms, we study the factors determining the termination of bank–firm relationships. We find that such terminations are mainly driven by bank-side factors and that these bank-driven terminations increase when banks’ capital conditions worsen. Furthermore, a longer relationship duration decreased the probability of termination substantially when the Japanese banking system was stable, whereas the duration effects weakened when the system became fragile.

What causes Chinese listed firms to switch bank loan provider? Evidence from a survival analysis

This paper analyses the duration of firm-bank relationships and examines what drives firms in China to change from one bank loan provider to another. Matched data of firm-loan-duration to bank provides a unique panel data set of relationship between China's listed firms and their lending banks consisting of 2102 firms listed on both the Shanghai Stock Exchange and Shenzhen Stock Exchange in the period of 1996–2016. The Cox proportional hazard model is used to allow for a semiparametric hazard function after parametrically controlling for firm-specific financial factors, industry factors, ownership characteristics, internal management changes, and external macroeconomic changes. In addition, we explore the impact of the 2008 financial crisis, bank-financial and ownership characteristics. The main finding of this study is that in an environment of growing commercialisation of relationships the firm-bank relationship between state-owned enterprises (SOEs) and state-owned banks (SOBs) in China remains super-stable. However, a change in the CEO of a firm even of a SOE increases the probability of the loan-provider being changed.

Dividend policy and the bank-firm relationship: evidence from Tunisian context

Dividend policy and the bank-firm relationship: evidence from Tunisian context

Indirect Costs of Government Aid and Intermediary Supply Effects: Lessons from the Paycheck Protection Program

The $669 billion Paycheck Protection Program (PPP) provides highly subsidized financing to small businesses. The PPP is a positive shock in financing supply to the small, highly constrained publicly listed firms in our sample and has average positive treatment effects. Yet, uptake is not universal. In fact, several firms return PPP funds before use, and curiously, experience positive valuation effects when they do so. These firms desire and the markets value the release from government oversight even if it means giving up cheap funding. The PPP is also a demand shock to the banks making PPP loans. Intermediary supply effects shape PPP delivery. Larger borrowers enjoy earlier PPP access, an effect that is more pronounced in big banks. The results have implications for policy design, the costs of being public, and bank-firm relationships.

Dividend policy and the bank-firm relationship: evidence from Tunisian context.

The Tunisian economy has undergone several changes since independence, such as liberalisation and the opening of the external market. Since then, the financial market has developed gradually. These changes have positively affected banking services and the reforms of the International Monetary Fund (1986-1997) have significantly improved the Tunisian banking sector. This paper aims to study the dividend policy of Tunisian firms, focusing on the relationship between banks and firms, and its impact on the dividend policy (DP) of non-financial firms. Two econometric models have been used to explore the role of banks in Tunisian firms: partial adjustment model (PAM) and fully adjustment model (FAM). The results of both models suggest that the creditor bank positively affects the DP of non-financial firms in Tunisia. Only the results of PAM model have shown that banks play a dual role in nonfinancial Tunisian firms and negatively affect the payment of dividends.

L' effet synergique des déterminants de l'accès au financement bancaire par les PME au Cameroun

ABSTRACT This paper explores the synergistic effect of the determinants of access to bank financing by Small and Medium Sizes Enterprises (SMEs) in Cameroon. The methodology of analysis is the binomial logistic regression applied on data collected by a questionnaire administered to a sample of 78 SMEs. Three main results stem from this research. Firstly, the bank-firm relationship measured by the duration of the relationship and the number of banks in a financing relationship with the firm has a positive and significant effect on access to bank credit. Secondly, the company's ownership structure has a significant impact on access to bank financing. Thirdly, the profile of the manager captured through his age has a significant influence on SMEs access to bank financing.

Relationships Matter: the Impact of Bank-Firm Relationships on Mergers and Acquisitions in Japan

We examine the influence of bank-firm relationships on mergers and acquisitions (M&As) in Japan. This examination dissects the effect of firms’ linkages with banks through lending, director, and ownership relationships. This study uses a comprehensive data set that spans the period from 2000 to 2015 to show that bank-firm relationships generally increase the likelihood and size of an M&A. Contrary to conventional wisdom on the adverse effects of these relationships, such as zombie lending, our results indicate that Japanese banks facilitated restructuring and international expansion in the 2000s. However, in cases where a bank plays a dual role as a lender and shareholder to an acquirer, the likelihood and size of the M&A declines. This result stems from a bank’s desire to maintain corporate governance mechanisms and control rights.

The real effects of bank distress: Evidence from bank bailouts in Germany

How does bank distress impact their customers' probability of default and trade credit availability? We address this question by looking at a unique sample of German firms from 2000 to 2011. We follow their firm-bank relationships through times of distress and crisis, featuring the different transmission of bank distress shocks into already weakened firm balance sheets. We find that a distressed bank bailout, which is subject to restructuring and deleveraging conditions, leads to a bank-induced increase of firms' probabilities of default. Moreover, bailouts tend to reduce trade credit availability and ultimately firms' sales. We further find that the direction and magnitude of the effects depends on firm quality and the relationship orientation of banks.

Editorial of the special issue on bank-firm relationships in the post-crisis era

Editorial of the special issue on bank-firm relationships in the post-crisis era

Bank relationships and corporate cash holdings

In this paper, we investigate how firm–bank relationships affect corporate cash-holding behavior. Using bank loan and financial statement data from emerging firms in Japan, we find that firms with concentrated bank relationships hold lower levels of cash. Additionally, firms with such bank relationships have less propensity to save cash from their cash flows, but we do not observe an effect of bank relationships on cash holdings among firms with access to bond markets. Smaller firms with concentrated bank loan structures hold higher levels of cash. Our results are robust as far as the endogeneity bias and managerial agency problems are concerned. These findings suggest that concentrated bank relationships affect firms' cash holdings, driven by precautionary motives, but such relationships lead to hold-up problems among smaller firms without alternative sources of liquidity. We also find that the negative effect of concentrated bank relationships is weakened after financial crisis periods.

Banking relationships, firm-size heterogeneity and access to credit: Evidence from European firms

Using detailed data on European manufacturing firms, this paper investigates the role of firm-bank relationships and lending technologies in firms’ access to credit during the 2007–2009 financial crisis. Empirical results show that firms’ credit availability improves when banking relationships are tighter and when banks adopt a relationship lending approach. The association between banking relationship characteristics and credit access is characterized by significant heterogeneity across firm size groups. Specifically, we find that relationship lending technologies, the recourse to multiple banking and a consolidated relationship with the main bank are particularly beneficial for the access to credit of informationally opaque small businesses.

은행 자기자본비율과 주거래 기업의 대출 관계 (Bank Capital Ratio and Corporate Loan of Main Bank)

Korean Abstract: 본 연구는 기업수준의 미시자료를 이용하여 은행 자기자본비율과 기업 대출 관계에 대해 다양한 분석결과를 제시하였다. 은행 자기자본비율과 (주거래)기업 대출은 양의 관계를 보였으나, 은행 자기자본비율과 기업의 주거래은행 대출비중은 음의 관계를 보였다. 은행 자기자본비율 관련 기업대출의 경기순응성을 확인할 수 있는 반면, 주거래기업의 은행대출 관계에서는 은행 자기자본비율에 따른 기업대출의 경기순응성이 완화될 것으로 추론된다. 바젤Ⅱ 시행 전후, 은행 규모에 따라 은행 자기자본비율과 (주거래)기업 대출, 은행 자기자본비율과 기업의 주거래은행 대출비중은 유의한 차이를 보였다. 2008년 바젤Ⅱ시행이후 은행 자기자본비율과 (주거래)기업 대출 간의 양의 관계는 더욱 확대되는 반면, 은행 자기자본비율과 기업 주거래은행 대출비중 간의 음의 관계는 감소하였다. 한편 은행 규모가 클수록 은행 자기자본비율과 (주거래)기업 대출 간의 양의 관계는 감소되는 반면, 은행 자기자본비율과 기업의 주거래은행 대출비중 간의 음의 관계는 더욱 확대된 것으로 나타났다. English Abstract: The purpose of the study is to empirically investigate the various relationships between the bank capital ratio and the corporate bank loans by using micro firm level data. We analyzed all non-financial listed companies in Korea between 2002 and 2012. The results showed a positive relationship between bank capital ratio and the corporate main bank loans. It supports the pro-cyclicality of bank capital ratio in corporate bank loans. However, we found a negative relationship between bank capital ratio and firm’s main bank loan ratio. We inferred the less pro-cyclicality of bank capital ratio in the main bank-firm relationship. In addition, we found the significant impacts of BaselⅡ capital regulation and bank size on the relationships between bank capital ratio and bank corporate loan or main bank loan ratio.

'Keeping It Personal' or 'Getting Real'? On the Drivers and Effectiveness of Personal versus Real Loan Guarantees

Little is known about the drivers and effectiveness of personal versus real loan guarantees provided by firms. This paper studies a dataset of 477,209 loan contracts granted over the 2006-2014 period by one Spanish financial institution consisting of several distinguishable organizational units. We uncover different reactions of personal and real guarantee requirements along key bank, loan, bank-firm relationship and firm characteristics. Personal guarantees are mostly driven by the economic environment as reflected in firm conditions, while real guarantees are mostly explained by loan characteristics. In response to higher capital requirements imposed by European authorities in October 2011, personal guarantees requirements increased significantly more than their real counterparts. But both personal and real guarantees can discipline firms in their risk-taking.

Lending technologies, banking relationships, and firms’ access to credit in Italy: the role of firm size

ABSTRACTThis paper analyses the role of lending technologies and banking relationships on firms’ credit access in Italy. Using EFIGE firm-level data, we show that the depth and strength of firm–bank relationships have heterogeneous effects on credit demand and rationing probabilities depending on the size of the borrower. Multiple banking relationships alleviate financial constraints for small firms, while borrowing from a large number of lenders hinders access to credit for large companies. Small and medium-sized enterprises with a higher share of debt with the main bank have a lower probability of being credit denied, as debt concentration contributes to overcome the opacity problems typical of the SMEs. Long-lasting relationships, by reducing information asymmetries, significantly improve access to credit for small and large firms. Conversely, we find that medium-sized enterprises are more exposed to financing constraints as relationship duration increases, due to possible lock-in effects. Finally, firms maintaining banking relationships based on transactional technologies are more likely to be credit denied, while the use of relationship lending technologies improves credit availability for both small and large enterprises.

Limited loan rate differentiation, guanxi, loan size and loan maturity in the Chinese bank credit market

Since 2004, China has partially liberalized loan rate setting by the banks, but loan rates remain stubbornly within narrow bounds. We argue that competition in the loan market is signalled through the variation of loan deal terms and loan maturity rather than loan rates. We examine the determinants of loan deal conditions in terms of size and maturity. This paper focuses on the role of single firm-bank relationships in determining loan deal conditions as evidence of guanxi in Chinese banking market. Commercial loan deal terms of listed companies are matched to provider banks over the period 1999–2012 and sub-sample estimation for the pre-2004 and post-2004 periods confirm a change in the bank-firm-loan relationship. We find that single firm-bank relationships are associated with larger loan size and longer loan maturity in the pre-liberalization period but that this relationship has weakened in the liberalization period.

Exploring the nexus between bank market power and exports

Although the literature underlines the importance of finance in international trade, no prior study has examined the causal links between market power in banking and export performance. Using a world sample over the 1997-2010 period, and accounting for both observed and unobserved country heterogeneity, we find a positive effect of bank market power on exports, especially in high-income countries. We also document that this export-enhancing effect is more potent in informationally opaque markets. Our findings accord with information hypothesis which suggests that market power in banking induces stronger bank-firm relationships which can generate benefits for both borrowers and lenders. Policy interventions should, therefore, promote the supply of relationship lending as a means to mitigate informational asymmetries in the export market.