Close relationships between banks and firms: is it good or bad?
AbstractThis paper investigates the issues involved in cross-ownership between banks and firms. The idea is that congruity among the parties in control of the bank and the firm allows to save on monitoring costs, but it gives rise to a conflict of interest between on one hand the parties in control of the bank and on the other hand the outside investors, as for example depositors, of the bank. Moreover, when monitoring of borrowing is important and unobservable by outsiders, there is interdependency among incentives, so that the conflict of interest may reduce even further incentives to monitor all other projects in the bank portfolio. Nevertheless, the paper shows that there are benefits from cross-ownership, whenever the bank involved in the relationship is debt financed and well diversified.
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Bibliographic InfoArticle provided by Elsevier in its journal Research in Economics.
Volume (Year): 52 (1998)
Issue (Month): 3 (September)
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Web page: http://www.elsevier.com/locate/inca/622941
Other versions of this item:
- V. Cerasi & S. Daltung, 1998. "Close-Relationships between Banks and Firms: Is it Good or Bad?," Departmental Working Papers 1998-01, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
- Sonja Daltung & Vittoria Cerasi, 1998. "Close-Relationships Between Banks and Firms: Is It Good or Bad?," FMG Discussion Papers dp293, Financial Markets Group.
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- Cerasi, Vittoria & Daltung, Sonja, 2000.
"The optimal size of a bank: Costs and benefits of diversification,"
European Economic Review,
Elsevier, vol. 44(9), pages 1701-1726, October.
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- Giuseppe Bognetti, 1999. "Nuove forme di gestione dei servizi pubblici," Departmental Working Papers 1999-04, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
- Massimo Florio & R. LUCCHETTI & F. QUAGLIA, 1998. "Grandi e piccole imprese nel Centro-Nord e nel Mezzogiorno: un modello empirico dell'impatto occupazionale nel lungo periodo," Departmental Working Papers 1998-02, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
- Massimo Florio & Anna Giunta, 1998. "Planning Contracts in Southern Italy, 1986-1997: a Prelimary Evaluation," Departmental Working Papers 1998-04, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
- M. Florio, 1998. "Economic Theory, Russia and the Fading "Washington Consensus"," Departmental Working Papers 1998-08, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
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