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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)

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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  • Doris Neuberger, 2005. "What’s Common to Relationship Banking and Relationship Investing? Reflections within the Contractual Theory of the Firm," Finance 0510003, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0510003
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    More about this item

    Keywords

    banks; institutional investors; financial systems; corporate governance; markets vs. hierachies; theory of the firm;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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