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Bank Relationships and Firms' Financial Performance: The Italian Experience
Author(s) -
Castelli Annalisa,
Dwyer Gerald P.,
Hasan Iftekhar
Publication year - 2012
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2009.00531.x
Subject(s) - business , equity (law) , return on assets , return on equity , monetary economics , agency (philosophy) , agency cost , finance , financial system , economics , profitability index , corporate governance , shareholder , philosophy , epistemology , political science , law
We examine the connection between the number of bank relationships and firms' performance using a unique data set on Italian small firms for which banks are a major source of financing. Our evidence indicates that return on equity and return on assets decrease as the number of bank relationships increases with a stronger effect on small firms than large firms. We also find that interest expense over assets increases as the number of relationships increases. Particularly for small firms, these results are consistent with analyses suggesting that fewer bank relationships reduce information asymmetries and agency problems and outweigh hold‐up problems.