Bank Relationships and Firms’ Financial Performance: The Italian Experience

58 Pages Posted: 27 Dec 2009

See all articles by Annalisa Castelli

Annalisa Castelli

Department of Economics - University of Rome Tor Vergata

Gerald P. Dwyer

Clemson University; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Date Written: December 16, 2009

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, the effects being stronger for small firms than for large firms. We also find that the ratio of interest expense to assets increases as the number of relationships increases. Particularly for small firms, these results are consistent with finding that suggest that having fewer bank relationships reduces the information asymmetries and agency problems and outweighs the hold-up problems.

Keywords: bank relationships, small business lending, firms’ performance

JEL Classification: D21, G21, G32

Suggested Citation

Castelli, Annalisa and Dwyer, Gerald P. and Hasan, Iftekhar, Bank Relationships and Firms’ Financial Performance: The Italian Experience (December 16, 2009). Bank of Finland Research Discussion Paper No. 36/2009, Available at SSRN: https://ssrn.com/abstract=1527041 or http://dx.doi.org/10.2139/ssrn.1527041

Annalisa Castelli

Department of Economics - University of Rome Tor Vergata ( email )

Via Columbia 2
Rome, 00133
Italy

Gerald P. Dwyer

Clemson University ( email )

Department of Economics
Clemson University
Clemson, SC 29634
United States

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Iftekhar Hasan (Contact Author)

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

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