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Finance, Control and Profitability: The Influence of German Banks

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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 Department of Economics, Emory University (Atlanta) in its series Emory Economics with number 0304.

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Date of creation: Mar 2003
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Handle: RePEc:emo:wp2003:0304

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  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 GmbH. [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. 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:
  5. 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!]
  6. 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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