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Does Bank Failure Affect Client Firms? Micro Evidence from Estonia

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  • Karin Jõeveer

Abstract

This article explores the effect of a bank’s failure on its client firms using the 1998 bankruptcy of a middle-sized Estonian bank. The firms studied in this article are privately held and do not rely on public equity. The performance of the firms receiving credit from the failed bank is compared to that of a matched set of other firms. The client firms are found to be more likely to fail after their bank’s failure even after controlling for firm characteristics before the event. A decrease in the liquidity of the client firms is also detected just after a bank failure, suggesting that the loss of liquidity may be the linkage between a bank failure and the failure of the clients. JEL Classification: G14, G21, G3

Suggested Citation

  • Karin Jõeveer, 2016. "Does Bank Failure Affect Client Firms? Micro Evidence from Estonia," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 15(3), pages 310-332, December.
    • Handle: RePEc:sae:emffin:v:15:y:2016:i:3:p:310-332
    DOI: 10.1177/0972652716666458
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    More about this item

    Keywords

    Bank failure; client firm performance; firm survival;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G3 - Financial Economics - - Corporate Finance and Governance

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