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Changing Banking Relationships and Client Firm Performance: Evidence for Japan from the 1990s

By Daisuke Tsuruta

Abstract

The banking literature concludes that the performance of client firms deteriorates if their distressed main bank reduces the supply of credit. However, these results rely on the assumption that main banks have an information advantage over other banks, such that if a client firm changes its main bank, its access to credit worsens. Using Japanese data from a period including financial shocks, we show that firms change the main banking relationship when their main bank becomes distressed. In addition, the performance of client firms improves after a change in the main bank relationship. This implies that the availability of credit improves for these firms, despite the change in main bank.

Topics: G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill, G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages, G20 - General
Year: 2012
DOI identifier: 10.1016/j.rfe.2013.12.002
OAI identifier: oai:mpra.ub.uni-muenchen.de:35895

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