In continental Europe, banks are more and more replaced by non-bank institutional investors in the financing and control of firms, which may imply a shift from relationship finance with insider control to arm's length finance with outsider control. However, non-bank institutional investors may develop relationships with firms similar to the traditional long-term bank-firm relationship, providing substitutive services. The present paper differentiates between relationship banking and relationship investing within the theory of the firm and reviews the financial and corporate control services provided by both arrangements.
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