Relationship Banking, Liquidity, and Investment in the German Industrialization

Fohlin, Caroline

doi:10.2139/ssrn.139049

Cited by 32 publications

(40 citation statements)

References 18 publications

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“…Our empirical findings are in line with those of Fohlin (1998) directors. This is a valid but, in our opinion, restrictive way of distinguishing banked vs. unbanked firms.…”

supporting

confidence: 89%

“…We find that single-and multiple-banked firms are most likely subject to financial 8 The strength of firms' banking relationship has been defined in the literature as: the relationship's length (Petersen and Rajan, 1994;Harhoff and Körting, 1998;Berger andUdell, 1995 andDegryse andVan Cayseele, 2000), the relationship's scope, i.e., type and number of financial services Rajan, 1994 andDegryse andvan Cayseele, 2000), bank's ownership (Elston, 1996;García-Marco and Ocaña, 1999;Fohlin, 1998 andChirinko andElston, 2006;) and the number of banks (Petersen and Rajan, 1994;Harhoff and Körting, 1998;Houston andJames, 2001 andFuss andVermeulen, 2006). 9 With the exception of Houston and James (2001) and Fuss and Vermeulen (2006) who differentiate between single and multiple banked firms, the rest of the papers only consider the presence of banks as shareholders or on firms' boards of directors.…”

mentioning

confidence: 93%

“…In one case the authors find no significant effect of bank relationships (Fuss and Vermeulen, 2006, for Belgium). In another case the result is a positive effect on cash flow sensitivity (Fohlin, 1998, for Germany during the formative years of universal banking).…”

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confidence: 99%

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No Bank, One Bank, Several Banks: Does it Matter for Investment?

et al. 2010

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This paper examines whether financial constraints affect investment decisions for older (larger) firms. We combine data from the Spanish Mercantile Registry and the Bank of Spain Credit Registry (CIR) to classify firms according to their number of banking relations: one, several, or none. Our empirical strategy combines two approaches based on a common dynamic model of firm finance and investment. First, using a standard Euler equation adjustment cost approach, we find that banked firms in our sample are likely to exhibit cash flow sensitivity while unbanked firms are not. Second, using structural maximum likelihood estimation, we find that unbanked firms' investment behaviour is close to that predicted by a model of (contingent) credit subject to moral hazard from unobserved effort, while single-banked and multiple-banked firms behave as if operating in a more limited financial environment, as in a traditional debt model. Firms in the unbanked category do not rely on bonds, equity or formal financial markets, but rather on other firms in a financial or family-tied group. To the best of our knowledge, we are among the first to document the importance of such groups in a European country. We control for reverse causality by treating bank relationships as endogenous and/or by appropriate stratifications of the relatively large sample. JEL classification: C61, D82, D92, G21, G30

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“…Our empirical findings are in line with those of Fohlin (1998) directors. This is a valid but, in our opinion, restrictive way of distinguishing banked vs. unbanked firms.…”

supporting

confidence: 89%

mentioning

confidence: 93%

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No Bank, One Bank, Several Banks: Does it Matter for Investment?

et al. 2010

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“…Much of the literature has studied the value of these relationships directly using modern data from countries characterized by bank-centered financial systems, such as Germany (Gorton and Schmid 2000;Agarwal and Elston 2001) and Japan (Weinstein and Yafeh 1998;Morck and Nakamura 1999), and where bankers have only a modest presence on firms' boards, such as the United States (Booth and Deli 1999;Kroszner and Strahan 2001;Güner, Malmendier, and Tate 2008). Economic historians have also investigated the effect of ties to J. P. Morgan and Co. in early twentieth century America (DeLong 1991;Ramirez 1995;Cantillo Simon 1998) and to banks in other countries (Fohlin 1998;Guinnane 2002;Braggion and Ongena 2014). Most of these studies, however, do not address the endogeneity of affiliations between firms and banks in a convincing way.…”

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confidence: 99%

Investment Banks as Corporate Monitors in the Early Twentieth Century United States

Frydman

Hilt

2017

American Economic Review

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We study the effect of financial relationships on firms ' Access to external finance among firms is an important determinant of economic growth, yet financial frictions arising from asymmetric information often impede this process. To mitigate these frictions, firms in many countries around the world form affiliations with financial intermediaries, which enable the intermediary to obtain information and monitor management. However, these affiliations may also be costly for firms: theoretical models suggest that intermediaries can use their informational monopoly to hold up firms and charge high interest rates or fees, thereby distorting investments (Sharpe 1990;Rajan 1992). The extent to which financial relationships foster or hinder growth is therefore an empirical question. Although a substantial literature has documented correlations between financial affiliations

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“…Background material is available in Davis and Huttenback (1986), Edelstein (1982), Morgan and Thomas (1969) and Ripley (1934). 2 However, see Fohlin (1998) and(2005) for analyses of early German capital markets.…”

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confidence: 99%

The Origins of the German Corporation - Finance, Ownership and Control

2005

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We are grateful for helpful suggestions from participants at the CEPR Early Securities AbstractThe ownership of German corporations is quite different today from that of AngloAmerican firms. How did this come about? To what extent is it attributable to regulation? A specially constructed data set on financing and ownership of German corporations from the end of the 19 th century reveals that, as in the UK, there was a high degree of activity on German stock markets with firms issuing equity in preference to borrowing from banks, and insider and family ownership declining rapidly. However, unlike in the UK, other companies and banks emerged as the main holders of equity, with banks holding shares primarily as custodians of other investors rather than on their own account. The changing pattern of ownership concentration was therefore very different from that of the UK with regulation reinforcing the control that banks exercised on behalf of other investors.

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Relationship Banking, Liquidity, and Investment in the German Industrialization

Cited by 32 publications

References 18 publications

No Bank, One Bank, Several Banks: Does it Matter for Investment?

No Bank, One Bank, Several Banks: Does it Matter for Investment?

Investment Banks as Corporate Monitors in the Early Twentieth Century United States

The Origins of the German Corporation - Finance, Ownership and Control

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