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Finance, Control, And Profitability: The Influence Of German Banks

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Robert S. 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 Max Planck Institute of Economics, Group for Entrepreneurship, Growth and Public Policy in its series Discussion Papers on Entrepreneurship, Growth and Public Policy with number 2004-26.

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Length: 52 pages
Date of creation: May 2004
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Handle: RePEc:esi:egpdis:2004-26

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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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  1. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May. [Downloadable!] (restricted)
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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. Xin Long & Alessandra Pelloni & Robert Waldmann, 2008. "Lump-Sum Taxes in a R&D Model," CEIS Research Paper 120, Tor Vergata University, CEIS, revised 14 Jul 2008. [Downloadable!]
  5. 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!]
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  6. Dario Sciulli & Antonio Gomes de Menezes & José Cabral Vieira, 2008. "Dual Labour Markets and Matching Frictions," CEIS Research Paper 119, Tor Vergata University, CEIS, revised 14 Jul 2008. [Downloadable!]
  7. 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!]
  8. 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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