Scandinavian Working Papers in Economics

Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

No 180: Why Do Firms Switch Their Main Bank? - theory and evidence from Ukraine

Andreas Stephan (), Andriy Tsapin () and Oleksandr Talavera
Additional contact information
Andreas Stephan: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Andriy Tsapin: European University Viadrina
Oleksandr Talavera: Aberdeen Business School

Abstract: We examine why firms change their main bank and how this affects loans, interest payments and firm performance after switching. Using unique firm-bank matched Ukrainian data, the treatment effect estimates suggest that more transparent and riskier companies are more likely to switch their main bank. Importantly,main bank power, measured by equity holdings, appears to be one of the main drivers of firm switching behavior. Furthermore, we find that firms have lower performance after changing their main bank as they have to contend with higher interest payments.

Keywords: financial constraints; switching; main bank power; firm performance; Ukraine

JEL-codes: G21; G30; G32

29 pages, June 4, 2009

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