Multiple Banking Relationships: Evidence from the Italian Experience

Abstract

Despite the growing theoretical literature on multiple banking relationships, empirical studies investigating the determinants of the number of bank-lending relationships are very scant. The purpose of this paper is to ¢ll this gap. Using a new data set provided by a large Italian bank we provide econometric evidence that the number of banking relationships is increasing in ¢rms' leverage and in the riskiness of the sector in which the ¢rm operates. This evidence suggests that ¢rms must engage in multiple banking relationships in order to satisfy their demand for leverage and is consistent with an interpretation of the multiple banking relationship`puzzle' based on the behaviour of the bank. A large bank may ¢nd it optimal to ¢nance many ¢rms for a small share of their total leverage rather than fully ¢nancing a smaller number of ¢rms in order to share risk and to maximize the number of customers.

Corporate choice of banks: Decision factors, decision maker, and decision process — First evidence

“…Being a foreign firm and publicly traded firm inversely affects the number of banks. Moreover, younger firms tend to have more bank relationships contrasting with the previous evidence on this account (see Detragiache et al, 2000;Cosci and Meliciani, 2002;Degryse et al, 2010;Harhoff and Körting, 1998;and Berger et al, 2006). However the samples used in these studies are potentially somewhat different from our sample.…”

Bank financing and credit rationing of Australian SMEs

“…Indirect measures include econometric techniques that quantify disequilibrium in credit markets (Fair and Jaffee, 1972). These techniques also use both proxies for credit rationing such as trade credit (Petersen and Rajan, 1994) and a credit line (Cosci and Meliciani, 2002). Direct measures are based on surveys of firms or banks.…”

Do firms benefit from multiple banking relationships? Evidence from small and medium- sized firms in Japan

“…Berger, Klapper, and Udell (2001), using data set on Argentinean firms, find that small firms choose multiple banking relationships over a single banking relationship as a reaction to bank distress even though this increases their cost of credit. Cosci and Meliciani (2002), using data provided by a large Italian bank, find that the number of banking relationships is positively correlated with a firm's leverage and the riskiness of the sector in which the firm operates. All these studies find that firms' quality and the fragility of their primary bank determine the firms' choice of the number of banking relationships.…”