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Bank relationships and firms’ financial performance: the Italian experience

  • Castelli , Annalisa

    ()

    (University of Rome, Italy)

  • Dwyer, Gerald P

    ()

    (Federal Reserve Bank of Atlanta, USA)

  • Hasan, Iftekhar

    ()

    (Rensselaer Polytechnic Institute, USA and Bank of Finland)

We examine the connection between the number of bank relationships and firms’ performance using a unique data set on Italian small firms for which banks are a major source of financing. Our evidence indicates that return on equity and return on assets decrease as the number of bank relationships increases, the effects being stronger for small firms than for large firms. We also find that the ratio of interest expense to assets increases as the number of relationships increases. Particularly for small firms, these results are consistent with finding that suggest that having fewer bank relationships reduces the information asymmetries and agency problems and outweighs the hold-up problems.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0936netti.pdf
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Paper provided by Bank of Finland in its series Research Discussion Papers with number 36/2009.

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Length: 55 pages
Date of creation: 16 Dec 2009
Date of revision:
Handle: RePEc:hhs:bofrdp:2009_036
Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/

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