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Bank Relationships and Firms' Financial Performance: The Italian Experience |
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| Authors: | Annalisa Castelli Gerald P Dwyer Iftekhar Hasan |
| Institution: | 1. University of Rome ‘Tor Vergata’, Faculty of Economics, Via Columbia, 2–00133 Rome, ItalyE‐mail: annalisa.castelli@uniroma2.it;2. Federal Reserve Bank of Atlanta, Center for Financial Innovation and Stability, 1000 Peachtree St. N.E., Atlanta, GA 30309, USA;3. and University of Carlos III, Departamento de Economía de la Empressa, Calle Madrid, 126, 28903 Getafe, SpainE‐mail: jerry@jerrydwyer.com;4. Rensselaer Polytechnic Institute, Lally School of Management & Technology, 110 8th Street, Troy, NY 12180, USA;5. and Bank of Finland, P.O. Box 160, FI‐00101 Helsinki, FinlandE‐mail: hasan@rpi.edu |
| Abstract: | We examine the connection between the number of bank relationships and firms' performance using a unique data set on Italian small firms for which banks are a major source of financing. Our evidence indicates that return on equity and return on assets decrease as the number of bank relationships increases with a stronger effect on small firms than large firms. We also find that interest expense over assets increases as the number of relationships increases. Particularly for small firms, these results are consistent with analyses suggesting that fewer bank relationships reduce information asymmetries and agency problems and outweigh hold‐up problems. |
| Keywords: | bank relationships small business lending firms' performance D21 G21 G32 |