Relationship Finance by Banks and Non-Bank Institutional Investors: A Review within the Theory of the Firm

Abstract

In continental Europe, banks are more and more replaced by non-bank institutional investors in the financing and control of firms. This must not imply a shift to arm's length finance, if these institutional investors develop relationships with firms similar to the traditional longterm bank-firm relationship. The present paper differentiates between relationship banking and relationship investing within the theory of the firm and compares the financial and corporate control services provided by both arrangementsrelationship banking, relationship investing, banks, institutional investors, corporate governance, theory of the firm