The effect of bank relationships on bond spreads: Additional evidence from Japan

This study investigates the impact of bank relationships on bond spreads using data on Japanese bond-issuing firms. In doing so, it extends the existing literature, which found that bank relationships decrease bond spreads, consistent with the view that bond investors benefit from bank monitoring, but this is not the case for investment-grade bonds in the US. This study provides evidence that the influence on the yields of investment-grade bonds varies with the type of bank relationship. In this research, a main bank is defined as a bank that is not merely the top lender to a firm but also one of the ten largest shareholders, while firms that borrow money from banks but have no ties with main banks are considered to have support bank relationships. The regression results show that although main bank relationships are not systematically associated with the yields of investment-grade bonds, support bank relationships are positively associated with them. It is suggested that, even for a sample of investment-grade bonds, a specific type of bank relationship affects bond spreads and the association between them is consistent with the view that bond investors are concerned about the hold-up problem posed by banks.     

Customers’ ways of making sense of a financial service relationship through intersubjective mirroring of others

The importance of relationships between buyer and sellers in marketing research is well established. This study contributes to relationship marketing (RM) research as it examines the microfoundations of financial service buyer and seller relationships. The study uses intersubjective theory and a qualitative method with the purpose of conceptualising the qualitatively different ways customers experience face-to-face interactions with a service provider. An empirical study is conducted to determine, based on the customer's own words, what is experienced in the interaction between the customer and the provider. Findings from the empirical material show that not all personal interactions between customers and a service provider, in this case a bank, can be labelled as relationships. Instead, what customers do perceive as a relationship is an encounter where the interaction entails symmetry in the way the customer and the provider mirror each other. When customers receive a treatment in opposition to an expectation of intersubjectivity, they will not refer to the situation as a relationship and, subsequently, according to the underlying assumptions of RM, do not willingly engage in further business with the provider.     

BANK LENDING RELATIONSHIPS AND THE COMPLEX NATURE OF BANK-CORPORATE RELATIONS

Recent developments in the banking and bank lending literature have highlighted the significance of bank-corporate relations. This paper expands the concept of relations, and places the credit relationship within the broader context both of comprehensive financial service supply relationships and multiple bank-corporate relationships. The expanded concepts of relations are based on extensive case study research and are explored through the use of theoretical constructs. These concepts of relations are then used to investigate bank rationales for relationship banking and to identify enhanced research opportunities for the related bank lending research programmes.     

Switching from Single to Multiple Bank Lending Relationships: Determinants and Implications

Our data show that nearly all firms borrow for the first time in their life from a single bank, but soon afterward some of them start borrowing from additional banks. Duration analysis shows that the likelihood of a firm substituting a single relationship with multiple relationships increases with the duration of that relationship. It also shows that this substitution is more likely to occur for firms with more growth opportunities and for firms with poor performance. The analysis of the ex post effects of the initiation of multiple relationships, in turn, shows that firms with higher levels of investment prior to the initiation of multiple relationships increase their investment even further when they start to borrow from multiple banks and that firms with poor prior performance continue to perform poorly afterward. These results suggest that concerns with hold-up costs, together with an unwillingness by the incumbent bank to increase its exposure to a firm because of its past poor performance, are the key reasons for these firms to initiate an additional relationship this early in their life. Journal of Economic Literature Classification Numbers: G21, G32.     

Single versus multiple banking: lessons from initial public offerings

A vast research in banking addresses the question of the costs and benefits of multiple bank relationships versus a single bank relationship. Although no clear-cutting conclusion is reached, several contributions suggest that multiple bank relationships might lead to a sub-optimal level of monitoring, compared to a single bank relationship, as a result of free riding and coordination problems. We take a novel approach to tackle this research question, by looking at the role, if any, played by the number of lending relationships in initial public offerings (IPOs). We look at the short-term performances of IPOs as measured by underpricing and find that firms that go public with multiple bank relationships exhibit more underpricing than those that go public with a single bank relationship. This finding is independent of the number of bank relationships and/or whether any of the lending banks also acts as underwriter in the offering. We interpret our results as suggesting that the market attributes a weaker certification role to multiple bank relationships because of their less effective monitoring of IPO firms.     

Do small businesses still prefer community banks?

We formulate and test hypotheses about the role of bank type – small versus large, single-market versus multimarket, and local versus nonlocal banks – in banking relationships. The conventional paradigm suggests that “community banks” – small, single-market, local institutions – are better able to form strong relationships with informationally opaque small businesses, while “megabanks” – large, multimarket, nonlocal institutions – tend to serve more transparent firms. Using the 2003 Survey of Small Business Finance (SSBF), we conduct two sets of tests. First, we test for the type of bank serving as the “main” relationship bank for small businesses with different firm and owner characteristics. Second, we test for the strength of these main relationships by examining the probability of an exclusive relationship and main bank relationship length as functions of main bank type and financial fragility, as well as firm and owner characteristics. The results are often not consistent with the conventional paradigm, perhaps because of changes in lending technologies and deregulation of the banking industry.     

Establishing bank–corporate relationships and building competitive advantages

This article investigates how banks build competitive advantage through relationship banking. Using a grounded theory approach, 29 interviews were conducted with relationship managers and corporate banking directors in 21 case banks from 2004 to 2008. Grounded theory models were developed to illustrate the value creation process in relationship banking. It was found that long-term bank–corporate relationships were established through trust-based personal communications. In the case, banks customer information and knowledge advantages were created. Risk-adjusted returns on assets were used to measure customer relationship performance, and relationship managers were rewarded accordingly. The interviewees thought that bank performance could be improved by managing customer credit risk and identifying cross-selling opportunities. This study starts to open up the ‘black box’ of how banks create shareholder value through relationship banking, provides a picture of relationship banking as a social phenomenon, and supplies some theoretical and managerial implications. The article also links the literature relevant to relationship banking from different disciplines. This is a new way of looking at the relationship banking phenomenon and relevant literature in an integrated manner.     

Banking relationships and access to equity capital markets: Evidence from Japan’s main bank system

We study the role of banking relationships in IPO underwriting. When a firm in Japan goes public, it can engage an investment bank that is related through a common main bank, or can select an alternative investment bank. The main bank relationship can be an efficient way for the investment bank to acquire information generated by the main bank, but may give rise to conflicts of interest. We find that main bank relationships give small issuers increased access to equity capital markets, but that issuers of large IPOs often switch to non-related investment banks that are capable of managing large offerings. While investment banks seek to exploit bargaining power with related issuers, issuers respond to expected high issue cost by switching to non-related investment banks. The net result is that total issue costs through related and non-related investment banks are similar. With respect to aftermarket performance and use of proceeds, we find no evidence of conflict of interest or self-dealing for either the main bank or the investment bank.     

Bank Heterogeneity and Interest Rate Setting: What Lessons Have We Learned since Lehman Brothers?

A substantial literature has investigated the role of relationship lending in shielding borrowers from idiosyncratic shocks. Much less is known about how lending relationships and bank‐specific characteristics affect the functioning of the credit market in an economy‐wide crisis. We investigate how bank and bank–firm relationship characteristics have influenced interest rate setting since the collapse of Lehman Brothers. We find that interest rate spreads increased by less for those borrowers having closer lending relationships. Furthermore, firms borrowing from banks endowed with large capital and liquidity buffers and from banks engaged mainly in traditional lending were kept more insulated from the financial crisis.     

Branding and relationships: Customer and supplier perspectives

This paper explores and investigates the role of branding within financial services. Specifically, the study aims to assess the importance of branding and its associated elements including brand image and brand experience in the relationships that exist between consumers and their financial brands. It aims to achieve this through research, which identifies gaps between the managerial and consumer perspectives on branding in relationships in retail financial services. It is well established that the characteristics of services are different from those of manufactured goods and that service personnel play a central role in the services experience. Moreover, the concept of relationship marketing within services proclaims the importance of one-to-one relationships between businesses and customers as well as relationships between consumers and their brands. Drawing from the fields of brand management, relationship marketing and services marketing, this research aims to investigate the perceptional differences between consumers and suppliers in relation to the importance of branding in financial service relationships. The research findings indicate that brand experience appears to be far more salient than brand image in shaping and building meaningful and lasting brand perceptions and promoting customer retention.     

Customer account relationships and e-retail banking usage<Superscript>1</Superscript>

Financial institutions are actively developing new electronic banking products for their retail customers. To date, the market leaders have drawn a disproportionably higher share of e-retail banking customers. In response, smaller institutions have become quite active in exploring ways to participate profitably in online banking. A major influence is from a customer relationship management (CRM) perspective, where institutions try to limit the outflow of current customers and direct high-value customers to potential products from a multi-product service offering array. These efforts can succeed only if retail bank marketers focus the promotion of the new products and services that can utilise this channel toward those customers who are most likely to find them attractive. The first aim of this study was to examine the role that online and electronic banking play in defining the customer's primary financial relationship. The analysis of 701 retail customers of a financial institution presented in this study suggests that banks and other institutions are highly vulnerable to loss of customers to rivals with extensive online services. A second aim was to examine to what extent information on banking relationships is able to extend CRM analysis beyond that offered by typical demographic and income data. Current customer account relationships are found to be highly predictive of use of electronic services use in general. And, interest in the use of specific online services is related to differing customer relationships in addition to ordinary demographic and balance information. These findings can be useful for retail banking in identifying potential high-value users from a customer relationship management perspective.     

Online relationship marketing and affective customer commitment – The mediating role of trust

The pervasive use of information technology has implications for consumer relationship management among financial services organisations. There is a need for increased understanding of how digital channels might influence the development and maintenance of firm–customer relationships and in particular the role of the Internet upon commitment and trust outcomes. Thus, this research aims to determine the relationship between online relationship marketing practices and affective customer commitment, and how this relationship is mediated by online channel trust. Data were collected from 200 online retail bank customers and Structural Equation Modelling was used to test the impact of five key online relationship marketing practices on affective commitment, and how trust mediates these relationships. We found that advocacy and collaboration have a direct relationship with affective commitment, while trust mediates the influence of engagement and personalisation on affective commitment. The article highlights the significance of trust in technology when using online channels to build customer relationships.     

Are Investment Banks Special Too? Evidence on Relationship‐Specific Capital in Investment Bank Services

The question of whether optimal provision of these services comes mainly from established relationships between banks and client firms or can result from arms'‐length market transactions has been the topic of considerable recent debate. This discussion has paralleled the debate in the commercial banking literature on the “specialness” of banks and whether lending can and should be relational or purely transactional. Whether the provision of investment bank services is relationship‐based or transactional is especially relevant now thanks to recent trends that have blurred the distinction between commercial and investment banks, and changed the competitive landscape for investment bank services. In their study summarized in this article, the authors examine whether investment bank‐client relationships create valuable relationship‐specific capital using stock market evidence from the period surrounding the collapse of Lehman Brothers. Specifically, they studied the effect of the Lehman collapse on companies that used Lehman for (1) underwriting equity offerings, (2) underwriting debt offerings, (3) advice on mergers and acquisitions, (4) analyst research services, and (5) market‐making services. The study addressed two specific questions. First, which investment bank services, if any, are associated with the creation of relationship‐specific capital; and second, what are the value drivers of this relationship capital? The authors report finding that companies that used Lehman as lead underwriter for public equity offerings experienced significantly negative abnormal stock returns in the days surrounding Lehman's bankruptcy announcement. By contrast, they find no significant reaction to the announcement for Lehman's debt underwriting clients or any of the other client categories they examine. While most of these investment bank services have at least the potential to create relationship‐specific capital, the authors' findings suggest that except for equity underwriting, all the other investment bank services appear to be transactional rather than relationship‐based, at least in the average case. Moreover, the authors report significant differences even among different groups of Lehman's equity underwriting clients. An equity underwriting relationship with Lehman appears to have been especially valuable for smaller, younger, and more financially constrained firms—those firms which presumably had a high degree of dependence on Lehman to access the capital market.     

Elements of a talent strategy for effective relationship building: A study among bank sales and service providers

This study considers equity sensitivity, emotional labor and organizational commitment as three important variables that play a critical role among sales and service providers at a bank and the effect these variables ultimately have on corporate performance. Using an equity theory perspective, research hypotheses linking the various constructs are formulated. Data are collected from sales and service managers at a community bank and partial aggregation followed by structural equation modeling is used to test the hypotheses. Results are reported, implications to a bank’s talent strategy are drawn, limitations are noted and directions for future research are indicated.     

The ties that bind: Bank relationships and small business lending

The importance of bank relationships for small firms’ ability to raise external finance is well-documented, yet the mechanism through which relationships improve access to capital markets has received little empirical attention. This paper uses hand-collected, proprietary data from a mid-sized bank in the United States to identify the channels that strengthen the relationship between a small business and its bank. In contrast to earlier work that focuses on the role of relationships in alleviating information and incentive problems in lending, I find that the source of value in relationship banking is not limited to enhanced monitoring. Exploiting a unique feature of this dataset, I examine two channels of relationship strength that directly measure the stream of non-lending profits generated from (1) the non-credit services cross-sold to the borrower, and (2) the additional bank clients referred by the borrower. I document that non-lending profitability empirically determines the risk-adjusted terms of lending. In models of loan price that already include both the bank’s proprietary risk rating and traditional risk proxies, non-lending profits significantly improve explanatory power and account for up to half of the total explained variation. Conditional on risk profile, a one-standard deviation increase in aggregate non-lending profits lowers the loan interest rate by 32 basis points and increases access to credit by 26%.     

The effect of automated service quality on bank financial performance and the mediating role of customer retention

The impact of automated service quality on bank financial performance and the mediating role of customer retention have received little attention, as scholars have focused on issues of usability and measurement. This study begins by showing the impact of technology on the way banks conduct business and proceeds to discuss automated service quality definitions and the potential influence of automated service quality on retention and financial performance. A mediating model that links service quality to bank financial performance through customer retention in the automated service context is proposed. The results of this empirical study confirm the role of customer retention as a mediator in the effect of automated service quality on financial performance. Implications of the findings are discussed and the limitations of the study and the potential for future research are considered.     

基于新闻文本共现性的银企关系分析——以房地产上市公司为例

本文首次提出基于新闻文本共现性衡量银企关系强度的指标。相比多数传统方法,该指标能够更为全面地反映银行和企业间的业务和非业务联系,并在数据可获得性上也具备优势。据此,本文对2009年至2014年间我国238家房地产上市公司与19家主要内资银行之间的银企关系强度进行了定量度量,并利用该指标对银企关系影响企业信贷融资能力的规律进行了实证分析。结果显示,良好的银企关系确实能显著提高企业的信贷可得性,但整体上对企业信贷融资成本的影响有限。同时,上述影响规律存在显著的企业间差异,对于规模小或盈利能力弱的企业,银企关系尤其能够帮助其提高信贷可得性或降低信贷融资成本。     

Relationships and the internet: The mediating role of a relationship banker

The role technology plays in building (or weakening) relationships with customers has become increasingly debated since the advent of the internet. Arguments, and some emerging empirical evidence, have shown that there is support for both sides of the argument; technology can both build and erode customer relationships. In this paper the authors seek to add further insight into this inquiry. The paper examines relationships that primarily exist within a technology context (in this case the internet) compared to those that primarily exist in a traditional face-to-face context (in this case the branch). The mediating role of a relationship banker is used to explore these dynamics further. Results show that the channel which the customer primarily adopts as the mode of interaction makes little difference to the strength of the relationship. What makes a difference, in terms of trust, is the existence of a ‘good’ or ‘excellent’ one-to-one relationship with an assigned banker. Intriguingly, the effects of the relationship banker are dependent on whether the customer uses primarily the branch versus the internet.     

On the potential for Twitter to add value in retail bank relationships

It is argued that research within financial services marketing has omitted to pay sufficient attention to social media in banking contexts generally and its potential impact on retail bank relationships in particular. At a general level, this research study explores the advent of social media and the manner of its deployment in financial services. Specifically, this article reports on the deployment of Twitter in bank–customer communications. Accordingly, a content analysis of 400 Tweets sent from a range of financial service providers to their customers was conducted. A literature-based model allowed for the classification of these Tweets as either customer acquisition, engagement or retention-oriented. Findings indicate that Twitter is mainly used for customer engagement, but scope is identified for their more meaningful deployment in relation to customer acquisition and retention.     

Commitment in auditor–client relationships: antecedents and consequences

It has been pointed out that the construct of commitment plays a central role in business relationships. This article draws on the relationship marketing literature in order to construct a framework that can be used to investigate what motivates clients to continue their relationship with an audit firm. The results from an empirical study provide evidence for existence of a number of antecedents and consequences of commitment in auditor—client relationships. It is shown that particularly affective commitment plays an important role in these relationships.