The value of banking relationships during a financial crisis: Evidence from failures of Japanese banks |
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| Affiliation: | 1. Federal Reserve Bank of Chicago, Economic Research, 230 S. LaSalle Street, Chicago, IL 60604, USA;2. Loyola University Chicago, Chicago, IL, USA;1. Alpert Medical School of Brown University and the Lifespan Hospital System, Providence, Rhode Island;2. Academic Edge, Bloomington, Indiana;3. Westat, Rockville, Maryland;4. University of Cincinnati College of Medicine and Cincinnati Children''s Hospital, Cincinnati, Ohio;5. University of Maryland School of Medicine, Baltimore, Maryland;6. Indiana University School of Medicine, Indianapolis, Indiana;1. Pharmaceuticals and Medical Devices Agency, 3-3-2 Kasumigaseki, Chiyoda-ku, Tokyo, Japan;2. Chugai Pharma Europe Ltd, Mulliner House, Flanders Road, Chiswick, London, UK;3. Kowa Research Europe Ltd, 105 Wharfedale Road, Winnersh Triangle, Wokingham, UK;1. Université Panthéon-Assas Paris 2, 92 rue d’Assas, 75006 Paris, France;2. Centre de Linguistique en Sorbonne (CeLiSo), Paris 4 Sorbonne, France;1. Department of Psychiatry and Biobehavioral Sciences, UCLA Semel Institute, Center for Community Health, University of California, 10920 Wilshire Boulevard, Suite 350, Los Angeles, CA 90024-6521, USA;2. Factor-Inwentash Faculty of Social Work, University of Toronto, 246 Bloor Street West, Toronto, ON, Canada M5S 1V4;3. Department of Psychiatry, Columbia University Medical Center, Room Old PI R209, Unit/Box: Biostatistics Division, 1051 Riverside Drive, New York, NY 10032, USA;4. Department of Health Policy and Management, UCLA Fielding School of Public Health; Division of General Internal Medicine & Health Services Research, UCLA David Geffen School of Medicine, University of California, 640 Charles E Young Dr S, Los Angeles, CA 90024, USA;1. School of Accounting, Dongbei University of Finance and Economics, Dalian, China;2. School of Business Administration, Dongbei University of Finance and Economics, Dalian, China;3. School of Business Administration, Dongbei University of Finance and Economics, Dalian, China |
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| Abstract: | Previous literature suggests that banking relationships can enhance the value of client firms in the presence of asymmetric information problems. Hence, severance of banking ties due to a bank failure can have adverse consequences for the clients of the failed bank. In this paper, we provide evidence on the value of banking relationships by examining the impact of three large bank failures in Japan on their clients and the clients of surviving banks. We find that, as in previous studies, the market value of customers of the failed banks is adversely affected on the date of the failure announcements. In addition, the effects are related to the financial characteristics of both the client firms and their primary banks. Firms that have greater access to alternative sources of funding experience a less severe adverse impact from bank failure announcements. Similarly, clients of banks that are more profitable, better capitalized, and have lower loan loss reserves suffer less from the failure announcements. However, we also find that these effects are not significantly different from the effects experienced by all firms in the economy. That is, the bank failures represent “bad news” for all firms in the economy, not just for the customers of the failed banks. |
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