Why Do Firms Switch Their Main Bank?: Theory and Evidence from Ukraine

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We examine why firms change their main bank and how this affects loans, interest payments and firm performance after switching. Using unique firm-bank matched Ukrainian data, the treatment effect estimates suggest that more transparent and riskier companies are more likely to switch their main bank. Importantly, main bank power, measured by equity holdings, appears to be one of the main drivers of firm switching behavior. Furthermore, we find that firms have lower performance after changing their main bank as they have to contend with higher interest payments. Terms of use: Documents in

Why Do Firms Switch Banks? Evidence from China

“…But more transparent firms can decrease the asymmetry of information and suffer less from the unobserved switching costs. This result is consistent with Stephan et al (2009) and Gopalan et al (2011) results. Another firm characteristic is Cashflows (cash flow ratio), which has a significant positive effect on switching banks.…”

“…As large firms are usually considered less opaque than small firms (Elyasiani and Goldberg, 2004;Stephan et al, 2009), the study finds a positive relationship between firm size and the probability of bank switching. Firms that have a better ability to generate cash from its sales are more likely to form a new bank relationship, since they are attractive to banks and can easily acquire new loans.…”

“…These results suggest that higher cash flow and transparency increase the likelihood for firms to switch. Usually larger firms are more transparent that small firms (Elyasiani and Goldberg, 2004;Stephan et al, 2009). Hence larger firms have a higher probability to change banks.…”

“…In contrast, borrowers with poor financials may be constrained to repeat borrow from their relationship lenders (Diamond, 1989). Firm size is likely to have a positive relationship with information transparency Stephan et al, 2009). Furthermore, firm size usually reflects the bargaining power of the larger borrower (Harhoff and Körting, 1998).…”

“…It is usually assumed that firm transparency is positively correlated with firm size (Elyasiani and Goldberg, 2004;Stephan et al, 2009), the positive relationship shows than more opaque firms are less likely to switch banks.…”