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Bank Relationships and Firm Profitability

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  • Hans Degryse
  • Steven Ongena

Abstract

This paper examines how bank relationships affect firm performance. An empirical implication of recent theoretical models is that firms maintaining multiple bank relationships are less profitable than their single-bank peers. We investigate this empirical implication using a data set containing virtually all Norwegian publicly listed firms for the period 1979-1995. We find a robust and economically relevant negative two-way correspondence between the number of relationships and sales profitability. We also find that firms replacing a single relationship are on average smaller and younger than those firms choosing not to replace a single relationship.

Suggested Citation

  • Hans Degryse & Steven Ongena, 2001. "Bank Relationships and Firm Profitability," Financial Management, Financial Management Association, vol. 30(1), Spring.
  • Handle: RePEc:fma:fmanag:degryse01
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies

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