Finance, control and profitability: the influence of German banks

Chirinko, Robert S.; Elston, Julie Ann

doi:10.1016/j.jebo.2004.01.004

“…For Japanese …rms, Morck et al (2000) report a nonlinear relationship between Tobin's q and bank shareholding. In Germany, Gorton and Schmid (2000) …nd that …rm performance is positively a¤ected by bank shareholding, but Chirinko and Elston (2006) report that bank control a¤ects company pro…tability negatively, although signi…cance is weak. Blass et al (1998) report that banks are signi…cant blockholders in Israel.…”

Section: Literature and Hypothesesmentioning

confidence: 99%

Bank Ownership, Firm Value and Firm Capital Structure in Europe

Baert

¹

,

Vennet

²

2009

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Rudi Vander VennetGhent University AbstractWe investigate whether or not banks play a positive role in the ownership structure of European listed …rms. We distinguish between banks and other institutional investors as shareholders and examine empirically the relationship beween …nancial institution ownership and the performance of the …rms in which they hold equity. Our main …nding is that after controlling for the capital structure decision of the …rms and the ownership decision of …nancial institutions in a simultaneous equations model, we …nd that there is a negative relationship between …nancial institution ownership and the market value of …rms, measured as the Tobin's Q. This is in contradiction with the monitoring hypothesis.

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“…Lehmann and Weigand reached the same conclusions as those of Gorton and Schmid except that the first used the ROA as an alternative measure of performance [30]. In contrast, in Germany, Weinstein, Chirinko, Kang found a negative relationship between the capital share held by the bank and performance [28,31,32]. Moreover, Emmons, Schmid found a roof-shaped relationship (U-shaped) between performance and the percentage of capital held by the bank, which confirms the managerial hypothesis [33].…”

Section: Banking Participation In Equity and Performancementioning

confidence: 64%

Bankers on Board, Banks as Shareholders and Firm ’s Performance: Case of the Tunisian Listed Companies

Affes¹,

Nh²

2016

J Bus Fin Aff

0

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according to the assumption of the agency costs of debt-equity, the banks' presence in the Board of Directors negatively effects on the company's value. Bubna and Radhakrishnan [5] showed that there are information asymmetries between the shareholders and the creditors. According to this hypothesis, the presence of banks in the board of directors reduces the information asymmetries between the firms and the creditors and consequently improves the companies' value.The existence of conflicts of interest between the shareholders and the creditors is reduced by a set of internal and external mechanisms. The board of directors and ownership structure are two alternative mechanisms of governance and control. Besides these two internal governance mechanisms, the presence of banks in the board of directors and ownership structure are also two governance mechanisms since this presence is associated with a reduction of the agency costs due to the conflicts of interest between the shareholders and the creditors.The practice of the banks' participation in the firms' capital depends on the country considered. Actually, in France, for example, banks are under no obligation to participate in the firms' capital. However, the American legislation and more particularly the Glass-Steagall Act (1933) prevents banks from participating in the firms' capital. Recently, the American legislation, through the Gramm-Leach-Bliley Act, has given commercial banks the opportunities to participate in the capital of firms. Besides, Germany, which encourages the banks' participation in the companies' capital, introduced some restrictions which were discussed in the Bundestag (1977). A very recent study has revealed that the Monopoly Commission limited the banks' participation to the amount of 5% of the companies' capital. The banking regulations in Keywords: Bankers on board; Banks as shareholders; Firm's Performance; Anglo-Saxon Introduction Nowadays, the corporate finance researches attach great importance to the role of banks in the management of enterprises [1][2][3]. In fact, companies resort to banking indebtedness. The nature of the relationship between banks and enterprises depends on the country and the existing regulations. Unlike Germany and Japan, where financing takes place via banks, the Anglo-Saxon financial markets play an important role in the funding and control of companies. German companies maintain long term relationships with a Bank called "Hausbank". A fundamental characteristic of these banks is their participation in the companies' capital and funding them Moreover, the Japanese Keiretsu system enables banks to become shareholders and members in the Board of Directors. The bank ownership is a very widespread phenomenon in the Japanese banking systems and the continental Europe. The theory recognizes the ability of the bank holdings on the liabilities of big businesses to improve the control system of the leaders. Moreover, the presence of banks in the capital of companies improves the quality of information they have, wh...

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“…As relational banks hold most of their borrowing firms' debt, they may prefer to avoid financing risky long-term investment projects, even if profitable, or decide to protect the firm management against profitable but risky hostile takeovers (Weinstein and Yafeh 1998;Chirinko and Elston 2006). In addition, in order to reduce negative externalities on other borrowers or to open up new business opportunities to them, relational banks might find it profitable to reveal private information about the firm's growth projects for which they are the main lender, thus dissipating the firm's crucial competitive advantages (Agarwal and Elston 2001).…”

Section: Why Should Main Banks Influence the Growth Of Borrowing Firms?mentioning

confidence: 99%

“…This baffling evidence has been explained by referring to a number of conceivable factors, like the greater risk-aversion of main banks (Weinstein and Yafeh 1998;Chirinko and Elston 2006), firm concern for the secrecy of growth investment opportunity (Agarwal and Elston 2006) or the incentive for main banks to inefficiently rescue their customers (Chirinko and Elston 2006), which counterbalance the positive effects of greater and more reliable information.…”

Section: Introductionmentioning

confidence: 99%

Long-lasting bank relationships and growth of firms

Gambini

¹

,

Zazzaro

²

2011

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Long-Lasting Bank Relationships and Growth of Firms Abstract A puzzling but consistent result in the empirical literature on banking is that firms with close bank ties do not grow faster than bank-independent firms. In this paper, we reconsider the link between relationship lending and firms' growth, distinguishing firms by size and "health". The idea is that the beneficial effects of relationship lending on information asymmetries can be compensated by other negative capture, risk and externality effects which make relational banks reluctant to support long-term growth projects of client firms, and that the strength of these compensating effects varies with firm size and health status. We explore the influence of long-lasting bank relationships on employment and asset growth of a large sample of Italian firms. The main finding is that relationship lending hampers the efforts of small firms to increase their size, while it mitigates the negative growth of troubled, medium-large enterprises. Terms of use: Documents inJEL-Code: G21, G34.Keywords: relationship lending, capture effects, firms' growth. We wish to thank Piero Alessandrini, Carlo Altavilla, Marco Lilla, Jack Lucchetti, Lars Norden, Andrea Presbitero, Franco Spinelli, Carmine Trecroci and Timo Wollmershäuser for comments and suggestions. Our thanks also go to seminar participants at the University of Brescia, University of Naples 'Parthenope', University of Milan and at the MoFiR conference on The changing geography of money, banking and finance in a post-crisis world (Ancona, Italy) and the Cesifo-Delphi conference on Financial markets, corporate governance and macroeconomic outcomes (Munich, Germany). Usual disclaimer applies. Alessandro Gambini 2

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Finance, control and profitability: the influence of German banks

Cited by 90 publications

References 35 publications

Bank Ownership, Firm Value and Firm Capital Structure in Europe

Bank Ownership, Firm Value and Firm Capital Structure in Europe

Bankers on Board, Banks as Shareholders and Firm ’s Performance: Case of the Tunisian Listed Companies

Long-lasting bank relationships and growth of firms

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