Long-Lasting Bank Relationships and Growth of Firms

51 Pages Posted: 6 Jul 2010

See all articles by Alessandro Gambini

Alessandro Gambini

Università Politecnica delle Marche - Department of Economics and Money and Finance Research group (Mo.Fi.R.); Confindustria Research Centre; Centre for Macroeconomics & Finance Research (CeMaFiR)

Alberto Zazzaro

Polytechnic University of Marche - Faculty of Economics

Date Written: June 30, 2010

Abstract

A puzzling but consistent result in the empirical literature on banking is that firms with close bank ties do not grow faster than bank-independent firms. In this paper, we reconsider the link between relationship lending and firms’ growth, distinguishing firms by size and “health”. The idea is that the beneficial effects of relationship lending on information asymmetries can be compensated by other negative capture, risk and externality effects which make relational banks reluctant to support long-term growth projects of client firms, and that the strength of these compensating effects varies with firm size and health status. We explore the influence of long-lasting bank relationships on employment and asset growth of a large sample of Italian firms. The main finding is that relationship lending hampers the efforts of small firms to increase their size, while it mitigates the negative growth of troubled, medium-large enterprises.

Keywords: relationship lending, capture effects, firms’ growth

JEL Classification: G21, G34

Suggested Citation

Gambini, Alessandro and Zazzaro, Alberto, Long-Lasting Bank Relationships and Growth of Firms (June 30, 2010). CESifo Working Paper Series No. 3106, Available at SSRN: https://ssrn.com/abstract=1634789

Alessandro Gambini

Università Politecnica delle Marche - Department of Economics and Money and Finance Research group (Mo.Fi.R.) ( email )

Piazzale Martelli, 8
60121 Ancona
Italy
+39 0712207230 (Phone)

HOME PAGE: http://www.mofir.univpm.it

Confindustria Research Centre ( email )

Viale Atronomia 30
Rome, 00144
Italy

HOME PAGE: http://www.confindustria.it

Centre for Macroeconomics & Finance Research (CeMaFiR) ( email )

Piazza Mirabello, 2
Milano, 20100
Italy

Alberto Zazzaro (Contact Author)

Polytechnic University of Marche - Faculty of Economics ( email )

Piazzale Martelli, 8
60121 Ancona
Italy

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