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What’s Common to Relationship Banking and Relationship Investing? Reflections within the Contractual Theory of the Firm

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  • Doris Neuberger

    (University of Rostock)

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    Abstract

    The financial systems in continental Europe are subject to profound changes in the institutions of market exchange. Banks traditionally holding close relationships with firms are substituted by non-bank institutional investors. The present paper examines whether this implies a substitution of relationship finance by arm’s length finance or of firm-like organization by market exchange. Within the contractual theory of the firm, we seek common features of relationship banking and relationship investing. Extending the governance structure approach, we show that both are hybrid organizations, whose comparative advantages depend on two kinds of asset specificity. They are complements to finance and control firms with different redeployability and information opaqueness of assets.

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    File URL: http://128.118.178.162/eps/fin/papers/0510/0510001.pdf
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    Bibliographic Info

    Paper provided by EconWPA in its series Finance with number 0510001.

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    Length: 24 pages
    Date of creation: 01 Oct 2005
    Date of revision:
    Handle: RePEc:wpa:wuwpfi:0510001

    Note: Type of Document - pdf; pages: 24
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    Web page: http://128.118.178.162

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    Keywords: banks; institutional investors; financial systems; corporate governance; markets vs. hierachies; theory of the firm;

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