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Distressed relationships : lessons from the Norwegian banking crisis (1988-1991)

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Author Info
Ongena, S.
Smith, D.C.
Michalsen, D. (Tilburg University, Center for Economic Research)

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

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

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis

References listed on IDEAS
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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. Nancy Silva, 2008. "Deposit Insurance, Moral Hazard and the Risk of Runs," Working Papers Central Bank of Chile 474, Central Bank of Chile. [Downloadable!]
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