The Value of Bank Relationships: Evidence from Belgium at the Start of the Great Depression

Abstract

We analyze the impact of bank relationships on the performance of Belgian firms listed on the Brussels stock exchange at the start of the Great Depression, in 1929-1931. Most of these firms were affiliated with one or more banks via interlocking directorships. Taking into account the number of affiliated banks and their size, the proportion of bank directors on the board, and the number of board seats held by bank directors, we find that bank affiliations did not affect stock returns in 1929. On the other hand, firm value was positively related to the number of board seats held by the firm directors before 1929, but not after 1929. This result holds for both bank directors and other directors. Combined, our results suggest that firms did not derive any benefits from bank affiliations at the start of the Great Depression.

The Effect of Banking Relationship on Firm Performance in Vietnam

“…Banking relationships are expressed through the number of banking relationships, duration of banking relationship, the amount of credit (Peltoniemi, 2004), interest (Bolton and Freixas, 2000), and banking services (Degryse and Cayseele, 2000). From firm's perspective, establishing good relationships with banks will help firms to enhance business reputation, to reduce the leakage of information to competitors (Campbell, 1979), to decrease the negative impact of asymmetric information (Diamond, 1984 and1991;Fama 1985;Rajan, 1992, Holmstrom and Tirole, 1997, and Bolton and Freixas, 2000, to reduce agency conflicts related to financial intermediation (Deloof and Vermoesen, 2010), to increase accessibility to loans, and to reduce the interest cost (Houston and James, 1996;Pertersen and Rajan, 1995). This leads to less dependence of firms on the liquidity of cash flow within the firms.…”

Bank Loan and Performance of Firms Listed at the Nairobi Securities Exchange

“…Establishment of excellent relationships with banks should enhance borrower's business reputation, reduce information leakages to the competitors, (Campbell, 1979), and reduce the impact of asymmetric information between the bank and borrowing firm (Diamond, 1984 andBolton andFreixas, 2000). Bank relationship might limit conflicts emanating from financial intermediation (Deloof & Vermoesen, 2010), increase access to loan facility at affordable cost (Houston &James, 1996 andPertersen &Rajan, 1995).…”