Corporate main bank decision

Do firms select their main bank relationship according to their risk or risk preferences? Relationship banking is attractive for high risk firms since it improves their access to finance and provides liquidity insurance. Low risk firms instead may not want to bear the additional costs. I employ a nested logit model to study the determinants of the main bank relationship decision by newly established German firms. I find that firms that ask for bank support in case of financial distress are more likely to choose a relationship-oriented bank, such as a public or cooperative bank. Cost sensitive firms are more likely to choose a private bank. But I find no evidence that firms select a bank according to ex ante risk. Transaction oriented banks are not able to attract low risk firms

From soft and hard-nosed bankers : bank lending strategies and the survival of financially distressed firms

Do private banks act as hard-nosed bankers when firms get financially distressed compared to public banks that have the mandate to support regional economy? For German firms in the period 2000-2005, I find that the probability of leaving the market after financial distress is higher for firms financed by private banks. The effects of different lending strategies are even larger for cooperative banks than for public banks

From soft and hard-nosed bankers: bank lending strategies and the survival of financially distressed firms

Do private banks act as hard-nosed bankers when firms get financially distressed compared to public banks that have the mandate to support regional economy? For German firms in the period 2000-2005, I find that the probability of leaving the market after financial distress is higher for firms financed by private banks. The effects of different lending strategies are even larger for cooperative banks than for public banks. --financially distressed firms,bank lending,public banks,cooperative banks

Firms and their main banks : Effects of main bank characteristics on firms' bank choice, R&D investment, and survival

1st paper: In this paper I study the effect of bank relationships in situations where firms are financially distressed. Does survival of financially distressed firms depend on their main bank relationship? I characterize the main bank relationship in four dimensions: First, the strength of the relationship. Second, market discipline and the characteristics of the main bank. Third, the main bank's ability to process soft information. Fourth, the degree of local banking market competition. Using data from 2000-2005, I estimate the probability that a financially distressed German firm exits the market. I find that firms with stronger bank relationships are less likely to leave the market. I control for the probability that a firm becomes financially distressed. I find that the bank type influences a firm's distress but not its market exit probability. 2nd paper: R&D investments are cornerstones for growth and competitive advantage of firms and whole economies. However, banks as the main provider of external funds for the vast majority of firms seem ill-equipped to provide the necessary funding. We question the dominant assumption that all banks suffer equally from information uncertainties and asymmetries in the evaluation of R&D. Instead, we argue that information externalities emerge from the information a bank can aggregate from the other firms in its portfolio. This positive effect of information access needs to be balanced with correlated risk concerns in the portfolio. We allow for industry differences with regards to underlying innovation uncertainties and signaling effects from the firms themselves. We test this model for more than 5,000 German firm observations, their main bank’s client portfolio and their R&D expenditures over a six year period. The theoretical predictions on information externalities and correlated risk concerns between a bank’s degree of industry specialization and its client’s R&D investment are supported. The potentials for altering the bank risk assessments through signaling are limited to patenting. Government R&D subsidies and venture capital investments have no additional signaling effect. Recommendations are derived based on these results. 3rd paper: Do firms select their main bank relationship according to their risk or risk preferences? Relationship banking is attractive for high risk firms since it improves their access to finance and provides liquidity insurance. Low risk firms instead may not want to bear the additional costs. I employ a nested logit model to study the determinants of the main bank relationship decision by newly established German firms. I find that firms that ask for bank support in case of financial distress are more likely to choose a relationship-oriented bank, such as a public or cooperative bank. Cost sensitive firms are more likely to choose a private bank. But I find no evidence that firms select a bank according to ex ante risk. Transaction oriented banks are not able to attract low risk firms

An information economics perspective on main bank relationships and firm R&D

Information economics has emerged as the primary theoretical lens for framing financing decisions in firm R&D investment. Successful outcomes of R&D projects are either ex-ante impossible to predict or the information is asymmetrically distributed between inventors and investors. As a result, bank lending for firm R&D has been rare. However, firms can signal the value of their R&D activities and as a result reduce the information deficits that block the availability of external funding. In this study we focus on three types of signals: Firm’s existing patent stock, the presences of a joint venture investor and whether the firm has received a government R&D subsidy. We argue theoretically that all of these signals have the potential to alter the risk assessment of the firm’s main bank. Additionally, we explore heterogeneities in these risk assessments arising from the industry level and the main bank’s portfolio. We test our theoretical predictions for a sample of more than 7,000 firm observations in Germany over a multi-year period. Our theoretical predictions are only supported for firms’ past patent activity while other signals fail to alter the risk assessment of a firm’s main bank. Besides, we confirm that the risk evaluation is not randomly distributed across bank-firm dyads but depends on industry and bank characteristics

How do banks screen innovative firms? Evidence from start-up panel data

Start-up firms often face difficulties in raising external funds. Employing a unique panel dataset covering 9,715 start-up firms over the period 2007-2009, we find that high-tech startups are less likely to use bank finance and face more difficulties in raising bank finance than low-tech start-ups. We find that external credit scores do affect the availability of credit for start-up firms, but that banks rely less on external rating information in their decision making for high-tech start-ups than low-tech start-ups. Start-ups that have their main relation with a small bank use more bank finance and report less difficulties in getting credit. By contrast, a greater expertise of the bank in the firm’s industry is not associated with fewer difficulties to get bank loans. There are no differences between high-tech and low-tech start-ups regarding the impact of bank size

Start-up financing : how credit ratings and bank concentration impact credit access

Externe Kreditwürdigkeitsprüfungen durch Rating-Agenturen haben für Banken bei der Kreditvergabe an Unternehmen, aufgrund der verschärften Regulierung durch Basel II, erheblich an Bedeutung gewonnen. Die These, ungünstige oder fehlende Ratings seien der Grund dafür, dass insbesondere innovative, noch nicht etablierte Unternehmen ohne aussagekräftige Kredithistorie oft erhebliche Schwierigkeiten hätten, Bankkredite zu erhalten, bestätigt sich jedoch nicht. Eine Studie des Zentrums für Europäische Wirtschaftsforschung (ZEW) zeigt zwar, dass negative Ratings generell für Unternehmen den Zugang zu Krediten erschweren. Gerade für junge, innovative Unternehmen fällt dieser Effekt allerdings deutlich geringer aus als für andere

If you dont succeed, should you try again? : the role of entrepreneurial experience in venture survival

There remains considerable scholarly debate about the role that prior entrepreneurial experience plays in new venture survival. Drawing on entrepreneurial learning theories, we use panel data on 8,400 new ventures to investigate the impact of four different types of prior entrepreneurial experience (portfolio, serial, failure (bankruptcy/voluntary dissolution) and a mix of success (portfolio/serial) and failure (prior bankruptcy/dissolution) on venture survival outcomes. We find that previously failed entrepreneurs are less likely to survive and, in common with entrepreneurs with mixed prior experiences, are more likely to experience bankruptcy. We find that portfolio and serial experience is unrelated to survival or avoiding bankruptcy. Conclusions for entrepreneurship scholars, entrepreneurs and stakeholders are discussed

From Soft and Hard-Nosed Bankers - Bank Lending Strategies and the Survival of Financially Distressed Firms From Soft and Hard-Nosed Bankers - Bank Lending Strategies and the Survival of Financially Distressed Firms From Soft and Hard-Nosed Bankers- Bank

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar. Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Download this ZEW Discussion Paper from our ftp server: ftp://ftp.zew.de/pub/zew-docs/dp/dp09059.pdf Executive Summary Public banks face a public contract to provide credit access to rms and households within their business district. Closely related to that, cooperative banks aim to support their members. Both are asked to nance projects as long as economically sustainable. Bank owners grand additional payment that reduce renancing costs. It is argued, that private banks are disadvantaged due to these renancing cost dierentials and competition is distorted. While the strategy set of public and cooperative banks is xed, private banks are free to choose which strategy they want to apply. In this paper I analyze, whether private banks adopt a dierent lending strategy. If private banks act as hard-nosed bankers as rms become nancially distressed, the probability of market exit should be higher compared to rms nanced by public or cooperative banks. In order to test this empirically probit models are employed estimating the probability of market exit for rms that became nancially distressed in the years between 2000 and 2005. A Heckman variation of the probit model controls for potential selection bias due to the data generating process. Information on rm'snancing behavior, entrepreneurial education, as well as internal and external factors inuencing a rm's market exit are used as covariates. Results show that rms with a savings or a cooperative bank as their main bank present a lower probability of exiting the market than those with private banks. The reasons for dierent lending strategies remain unclear. A possible explanation would be that private banks adopt stricter rules when rms become nancial distressed. Private banks could ask for additional control rights or rule out renegotiation in general. Private banks credit portfolio risk reduces indirectly if high-risk rms anticipated the behavior of the private banks and self select to public or cooperative banks. But the approximated credit portfolio risk by bank types, based on rms credit rating scores, indicate that private banks bear higher risk compared to public or cooperative banks. Abstract Do private banks act as hard-nosed bankers when rms get nancially distressed compared to public banks that have the mandate to support regional economy? For German rms in the period 2000-2005, I nd that the probability of leaving the market after nancial distress is higher for rms nanced by private banks. The eects of dierent lending strategies are even larger for cooperative banks than for public banks

A Service of zbw From Soft and Hard-Nosed Bankers - Bank Lending Strategies and the Survival of Financially Distressed Firms From Soft and Hard-Nosed Bankers - Bank Lending Strategies and the Survival of Financially Distressed Firms From Soft and Hard-Nos

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. Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Terms of use: Documents in Download this ZEW Discussion Paper from our ftp server: ftp://ftp.zew.de/pub/zew-docs/dp/dp09059.pdf Executive Summary Public banks face a public contract to provide credit access to rms and households within their business district. Closely related to that, cooperative banks aim to support their members. Both are asked to nance projects as long as economically sustainable. Bank owners grand additional payment that reduce renancing costs. It is argued, that private banks are disadvantaged due to these renancing cost dierentials and competition is distorted. While the strategy set of public and cooperative banks is xed, private banks are free to choose which strategy they want to apply. In this paper I analyze, whether private banks adopt a dierent lending strategy. If private banks act as hard-nosed bankers as rms become nancially distressed, the probability of market exit should be higher compared to rms nanced by public or cooperative banks. In order to test this empirically probit models are employed estimating the probability of market exit for rms that became nancially distressed in the years between 2000 and 2005. A Heckman variation of the probit model controls for potential selection bias due to the data generating process. Information on rm'snancing behavior, entrepreneurial education, as well as internal and external factors inuencing a rm's market exit are used as covariates. Results show that rms with a savings or a cooperative bank as their main bank present a lower probability of exiting the market than those with private banks. The reasons for dierent lending strategies remain unclear. A possible explanation would be that private banks adopt stricter rules when rms become nancial distressed. Private banks could ask for additional control rights or rule out renegotiation in general. Private banks credit portfolio risk reduces indirectly if high-risk rms anticipated the behavior of the private banks and self select to public or cooperative banks. But the approximated credit portfolio risk by bank types, based on rms credit rating scores, indicate that private banks bear higher risk compared to public or cooperative banks. Abstract Do private banks act as hard-nosed bankers when rms get nancially distressed compared to public banks that have the mandate to support regional economy? Nicht-technische Zusammenfassung For German rms in the period 2000-2005, I nd that the probability of leaving the market after nancial distress is higher for rms nanced by private banks. The eects of dierent lending strategies are even larger for cooperative banks than for public banks