Research Discussion Papers, Bank of Finland
No 13/1999:
Bank Relationships and Small-Business Closures during the Finnish Recession of the 1990s
Helvi Kinnunen ()
and Vesa Vihriälä
Abstract: The paper examines the role of bank relationships in
business closures during the Finnish economic crisis of the early 1990s. We
utilise a unique panel data set of 474 small and medium-sized firms, for
which we have standard accounting information and for which we can in
addition identify whether the firm had a lending relationship with the most
troubled part of the banking system, namely the Savings Bank of Finland and
Skopbank. By estimating a logit model we find that, even accounting for the
effects of liquidity, profitability, indebtedness, age and size, firms that
had a lending relationship with the savings banks concerned were more
likely to close in 1992 than other firms that year or the same firms in
other years. Thus being a loan customer of these banks entailed greater
risk for firms than having a lending relationship with other intermediaries
only in 1992, which was the year the banking sector came to a head. The
result lends support to the hypothesis that financial factors affect real
outcomes not only through firm and household balance sheets but also
through bank behaviour.
Keywords: financial factors; credit crunch; banking crisis; (follow links to similar papers)
23 pages, September 20, 1999
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