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Bank-firm relationships: A review of the implications for firms and banks in normal and crisis times


Ongena, Steven; Degryse, Hans; Ioannidou, Vasso (2015). Bank-firm relationships: A review of the implications for firms and banks in normal and crisis times. In: Watanabe, Tsutomu; Uesugi, Iichiro; Ono, Arito. The Economics of Interfirm Networks. Berlin: Springer, 177-189.

Abstract

Banks are important providers of external finance to firms. In order to solve asymmetric information problems, firms and banks often engage in bank-firm relationships. Relationship banking occurs when a bank and a borrower enter multiple mutual interactions and both parties invest in obtaining some counterparty specific information, binding bank and firm, to a certain degree, to each other. This chapter starts with a discussion of reasons for having exclusive versus non-exclusive relationships. It provides a concise overview on the determinants of the number and intensity of bank-firm relationships, and reviews how relationship banking generates costs and benefits for both banks and firms. We show that on average bank-firm relationships generate value for both. The costs and benefits of bank-firm relationships, however, vary substantially with whether an economy is in normal or crisis times.

Abstract

Banks are important providers of external finance to firms. In order to solve asymmetric information problems, firms and banks often engage in bank-firm relationships. Relationship banking occurs when a bank and a borrower enter multiple mutual interactions and both parties invest in obtaining some counterparty specific information, binding bank and firm, to a certain degree, to each other. This chapter starts with a discussion of reasons for having exclusive versus non-exclusive relationships. It provides a concise overview on the determinants of the number and intensity of bank-firm relationships, and reviews how relationship banking generates costs and benefits for both banks and firms. We show that on average bank-firm relationships generate value for both. The costs and benefits of bank-firm relationships, however, vary substantially with whether an economy is in normal or crisis times.

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Additional indexing

Item Type:Book Section, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Uncontrolled Keywords:Relationship banking, Non-exclusivity, Financial crisis
Language:English
Date:2015
Deposited On:20 Feb 2014 13:37
Last Modified:14 Feb 2018 08:38
Publisher:Springer
Series Name:Advances in Japanese Business and Economics
Number:4
ISBN:978-4-431-55389-2
OA Status:Closed
Publisher DOI:https://doi.org/10.1007/978-4-431-55390-8
Related URLs:http://www.springer.com/economics/macroeconomics/book/978-4-431-55389-2 (Publisher)
Other Identification Number:merlin-id:8504

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