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Finance, Control, and Profitability: The Influence of German Banks

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Author Info
Robert Chirinko ()
Julie Ann Elston ()

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Abstract

Bank intermediated finance has been cited frequently as the preferred means for channeling funds from savers to firms. Germany is the prototypical economy where universal banks allegedly exert substantial influence over firms. Despite frequent assertions about the considerable power of German banks and the advantages of a bank relation, empirical support is mixed. With a unique dataset and a focus on the fragility/sturdiness of inferences, this paper evaluates German bank influence in terms of three hypotheses: 1) do bank influenced firms enjoy lower finance costs? [No]; 2) is bank influence a solution to control problems? [Yes]; 3) do bank influenced firms have higher profitability? [No]. Coupled with results about the control consequences of concentrated ownership, these results suggest that bank influence serves as a substitute control mechanism, one of several available for addressing corporate control problems.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1073.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_1073

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Related research
Keywords: German banks; corporate finance and governance;

Other versions of this item:

Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Edwards, Jeremy & Nibler, Marcus, 1999. "Corporate Governance in Germany: The Influence of Banks and Large Equity-holders," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  2. Catherine Fuss & Philip Vermeulen, 2006. "The response of firms‘ investment and financing to adverse cash flow shocks - the role of bank relationships," Working Paper Series 658, European Central Bank. [Downloadable!]
  3. Catherine Fuss & Philip Vermeulen, 2006. "The response of firms\u2019 investment and financing to adverse cash flow shocks : the role of bank relationships," Research series 200607-1, National Bank of Belgium. [Downloadable!]
  4. Timothy W. Guinnane, 2001. "Delegated Monitors, Large and Small: The Development of Germany's Banking System, 1800-1914," Working Papers 835, Economic Growth Center, Yale University. [Downloadable!]
    Other versions:
  5. Edwards, Jeremy S S & Weichenrieder, Alfons J, 2009. "Control Rights, Pyramids, and the Measurement of Ownership Concentration," MPRA Paper 13830, University Library of Munich, Germany. [Downloadable!]
  6. Debdulal Mallick, 2007. "The Role of Elasticity of Substitution in Economic Growth: A Cross-Country Test of the La Grandville Hypothesis," Economics Series 2007_04, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance. [Downloadable!]
  7. Sumon Kumar Bhaumik & Shubhashis Gangopadhyay & Shagun Krishnan, 2006. "Reforms, Entry and Productivity: Some Evidence from the Indian Manufacturing Sector," IZA Discussion Papers 2086, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  8. Ettore Andreani & Kathrin Dummann & Doris Neuberger, 2009. "Composition of Supervisory Boards in Germany: Inside or Outside Control of Banks?," Thuenen-Series of Applied Economic Theory 103, University of Rostock, Institute of Economics, Germany. [Downloadable!]
  9. Emilio Barucci & Fabrizio Mattesini, 2008. "Bank shareholding and lending: complementarity or substitution? Some evidence from a panel of large Italian firms!," CEIS Research Paper 118, Tor Vergata University, CEIS, revised 14 Jul 2008. [Downloadable!]
    Other versions:
  10. Randall S. Kroszner & Philip E. Strahan, 1999. "Bankers on Boards: Monitoring, Conflicts of Interest, and Lender Liability," NBER Working Papers 7319, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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