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Do Banks Influence the Capital Structure Choices of Firms?

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  • Daniševská, P.
  • de Jong, A.
  • Verbeek, M.J.C.M.

Abstract

This paper investigates three capital structure decisions – leverage, debt maturity and the source of debt – in a simultaneous setting. Moreover, we investigate whether these choices are influenced by the involvement of banks in a firm. Our results based on a panel of Dutch firms show that bank relationships, measured by interlocking board memberships and equity ownership, have a significant impact on the relations among the three capital structure choices. First, less bank involvement strengthens the positive impact of leverage on maturity. This is consistent with the liquidity risk theory, because involved banks help firms to mitigate liquidity risk. Second, bank debt negatively effects leverage in firms with bank interlocks, while this relation is absent in firms without such bank involvement. This result suggests that banks maximize the value of their loans by reducing overall leverage. Third, we find a strong trade-off between bank debt and maturity, which is independent of the degree of bank involvement.

Suggested Citation

  • Daniševská, P. & de Jong, A. & Verbeek, M.J.C.M., 2004. "Do Banks Influence the Capital Structure Choices of Firms?," ERIM Report Series Research in Management ERS-2004-040-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
  • Handle: RePEc:ems:eureri:1333
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    References listed on IDEAS

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    More about this item

    Keywords

    bank relationships; capital structure; debt maturity; financial economics; international economics; source of debt;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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