Who Captures Who: Long-Lasting Bank Relationships and Growth of Firms
54 Pages Posted: 2 Jun 2009 Last revised: 6 Mar 2012
Date Written: May 25, 2009
The theoretical literature has identified potential benefits and costs of close bank-firm relationships for both parties, suggesting possible reasons for firms being captured by banks and vice versa. In this paper we empirically explore the effects of long-lasting credit relationships on employment and asset growth of a large sample of Italian manufacturing firms in the period 1998-2003. The main findings are that relationship lending hampers the efforts of small firms to increase their size (especially in terms of employees), while it mitigates the negative growth of troubled, medium-large enterprises, thus supporting the hypothesis that small firms are captured by banks which, in turn, are captured by large firms.
Keywords: relationship lending, capture effects, firms’ growth
JEL Classification: G21, G34
Suggested Citation: Suggested Citation