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Distressed Relationships: Lessons from the Norwegian Banking Crisis

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  • Ongena, S.
  • Smith, D.C.
  • Michalsen, D.

    (Tilburg University, Center for Economic Research)

Abstract

This paper measures the economy-wide impact of bank distress on the loss of relationship benefits. We use the near-collapse of the Norwegian banking system during the period 1988 to 1991 to measure the impact of bank distress announcements on the stock prices of firms maintaining a relationship with a distressed bank. We find that although banks experience large and permanent downward revisions in their equity value during the event period, firms maintaining relationships with these banks face only small and temporary changes, on average, in stock price. In other words, the aggregate impact of bank distress on the real economy appears small. We analyze the cross-sectional variation in firm abnormal returns and find that firms that maintain international bank relationships suffer more upon announcement of bank distress.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2000-13.

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Date of creation: 2000
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Handle: RePEc:dgr:kubcen:200013

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Web page: http://center.uvt.nl

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Keywords: bank relationship; bank distress; Norwegian banking crisis;

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Cited by:
  1. Øyvind Bøhren & Bernt Arne Ødegaard, 2001. "Patterns of Corporate Ownership: Insights from a unique data set," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 27, pages 55-86.
  2. Djankov, Simeon & Jindra, Jan & Klapper, Leora F., 2005. "Corporate valuation and the resolution of bank insolvency in East Asia," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2095-2118, August.

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