Research Discussion Papers, Bank of Finland
No 36/2009:
Bank relationships and firms’ financial performance: the Italian experience
Annalisa Castelli ()
, Gerald P Dwyer ()
and Iftekhar Hasan ()
Abstract: We examine the connection between the number of bank
relationships and firms’ performance using a unique data set on Italian
small firms for which banks are a major source of financing. Our evidence
indicates that return on equity and return on assets decrease as the number
of bank relationships increases, the effects being stronger for small firms
than for large firms. We also find that the ratio of interest expense to
assets increases as the number of relationships increases. Particularly for
small firms, these results are consistent with finding that suggest that
having fewer bank relationships reduces the information asymmetries and
agency problems and outweighs the hold-up problems.
Keywords: bank relationships; small business lending; firms’ performance; (follow links to similar papers)
JEL-Codes: D21; G21; G32; (follow links to similar papers)
55 pages, December 16, 2009
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