Creditor concentration: an empirical investigation

Most of the literature addressing multiple banking assumes equal financing shares. However, unequal, concentrated or asymmetric bank borrowing is widespread. This paper investigates the determinants of creditor concentration for German firms using a comprehensive bank-firm level dataset for the time period between 1993 and 2003. We document that lending is very often concentrated and, consequently, that relationship lending is important, not only for the small firms but also for the larger firms in our sample. However, we also find that risky, illiquid, large and leveraged firms spread their borrowing more evenly between multiple lenders. On the other hand, the degree of concentration increases with the profitability of the relationship lender. Relationship lending may spur financing provided by other banks, especially if the relationship lender is a public sector bank and if the other banks are large or do not have to tie up additional funds in capital. --bank relationships,asymmetric financing,banking competition

Bank disclosure and market assessment of financial fragility: Evidence from Turkish banks' equity prices

In this paper we explore whether Turkish banks with worsening indicators of financial fragility were subject to market monitoring during the years leading to the 2000/2001 crisis, and how the quality and timeliness of the disclosure affect market reaction. We find that shareholders reacted negatively to indicators of financial fragility such as increases in maturity mismatches, currency mismatches, and non-performing loans, showing shareholders’ concerns about the impact of financial fragility indicators on future profits. We also find that audited statements that show larger reporting lags, are not informative, pointing to the need of improving their timeliness. Finally, our study suggests that the finding that securities prices react to financial fragility indicators should not be taken as sufficient evidence of banks’ safety and soundness

Do exposures to sagging real estate, subprime or conduits abroad lead to contraction and flight to quality in bank lending at home?

We investigate how differential exposures by German banks to the US real estate market affect domestic lending in Germany when home prices started to decline in the US. We find that banks with an exposure to the US real estate sector and to conduits shift their domestic lending to industry–region combinations with lower insolvency ratios following a decrease in US home prices. These banks also contract their lending to German firms more than banks that do not have such exposure. We mainly document that possible losses abroad shift bank lending at home where the size of the effect depends on the type and the degree of exposure the bank has

Firms’ Choice of Financiers in M&A Deals: The Value of Bank-Firm Relationships

In this paper, we investigate the link between the financing of mergers and acquisitions deals and existing bank-firm relationships by using a unique dataset consisting of forty M&A deals in the Netherlands from 2004 to 2012. The dataset allows us to identify the existing relationship lender to the firm and the offers received from different banks to finance the deal. The results indicate that the existing bank relationship is the most important factor for a firm when choosing the financier of the deal. As expected, loan price, fee and loan size determine the choice too. The existing relationship continues to be valuable during the crisis, however, other deal specific factors start to matter as well. Finally, when switching between banks firms make their decisions depending on the cost level, value of collateral and loan size. Overall, the results point to the value of bank-firm relationships even though the borrowers may be relying too much on the old relationship bank

THE EURO AND CORPORATE VALUATIONS: THE CASE OF GREECE

This paper investigates the impact of the euro on corporate valuations in Greece. Previous empirical results for the ten countries that founded the Monetary Union (EMU) uncovered various positive effects of the common currency. Greece who joined EMU later, coming from a weaker macroeconomic background is expected to benefit substantially from the strong commitment of being part of a currency union. Our results show comparably stronger impact of the euro for Greece than for the founding members of EMU. The common currency has brought a 24% increase in Tobin’s q for Greek companies and the investment ratio has increased by 21%. The wave of investment was primarily financed by equity issues.European Integration, Euro, Corporate Valuations

Corporate choice of banks: Decision factors, process and responsibility – First evidence

In this paper, we investigate how firms choose their banks. We focus on the role played by the decision factors, the decision maker and the decision process in determining firm–bank relationships. We have access to a unique survey that was run by a major bank in the Czech Republic. We find that firms that consider bank reputation to be an important decision factor, have fewer bank relationships and are less likely to reduce the number or quantity of services taken from their banks. Firms that emphasize the price of bank services are more likely to end relationships or to reduce services. Interestingly, the identity of the corporate decision maker determines the number of bank relationships. A Chief Financial Officer deciding on her own will opt for a lower number of banks than a committee of board members.status: publishe

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

In this paper, we investigate how firms choose their banks. We focus on the role played by the decision factors, the decision maker and the decision process in determining firm-bank relationships. We have access to a unique survey that was run by a major bank in the Czech Republic. We find that firms that consider bank reputation to be an important decision factor, have fewer bank relationships and are less likely to reduce the number or quantity of services taken from their banks. Firms that emphasize the price of bank services are more likely to end relationships or to reduce services. Interestingly, the identity of the corporate decision maker determines the number of bank relationships. A Chief Financial Officer deciding on her own will opt for a lower number of banks than a committee of board members.Firm-bank relationships Switching Decision-making

Creditor concentration: an empirical investigation

Most of the literature addressing multiple banking assumes equal financing shares. However, unequal, concentrated or asymmetric bank borrowing is widespread. This paper investigates the determinants of creditor concentration for German firms using a comprehensive bank-firm level dataset for the time period between 1993 and 2003. We document that lending is very often concentrated and, consequently, that relationship lending is important, not only for the small firms but also for the larger firms in our sample. However, we also find that risky, illiquid, large and leveraged firms spread their borrowing more evenly between multiple lenders. On the other hand, the degree of concentration increases with the profitability of the relationship lender. Relationship lending may spur financing provided by other banks, especially if the relationship lender is a public sector bank and if the other banks are large or do not have to tie up additional funds in capital

CDS and credit: Testing the small bang theory of the financial universe with micro data

Does hedging motivate CDS trading and does that affect the availability of credit? To answer these questions we couple comprehensive bank-firm level CDS trading data from the Depository Trust and Clearing Corporation with the German credit register containing bilateral bank-firm credit exposures. We find that following the Small Bang in the European CDS market, extant credit relationships with riskier firms increase banks' CDS trading and hedging of these firms. Properly hedged banks holding more CDS contracts of riskier firms supply relatively more credit to these firms. Our results are overall stronger for firm CDSs experiencing larger improvements in liquidity