Bank Relationship and Firm Performance: Evidence from Thailand Before the Asian Financial Crisis

24 Pages Posted: 12 Nov 2004

See all articles by Piman Limpaphayom

Piman Limpaphayom

Sasin GIBA of Chulalongkorn University

Sirapat Polwitoon

Sigmund Weis School of Business, Susquehanna University

Abstract

This study examines the relation between bank relations and market performance in Thailand, an economy in which commercial banks play a crucial role through lending relationship and, for a number of companies, equity ownership. Overall, bank relationships, both equity-based and debt-based, positively affect capital investment. However, there is a negative relation between lending relationships, both short-term and long-term, and market performance indicating that bank lending may not always be consistent with value maximization. There is also evidence of a positive marginal effect of bank monitoring through equity ownership on market performance. Further, the relation between bank equity ownership and market performance appears to be non-linear with a concave function. Ownership by corporate insiders is also negatively related to bank equity ownership. Overall, the findings highlight the detrimental effects of excessive short-term debt usage, one of the factors believed to contribute to the financial crisis in Thailand, and the marginal benefit of the equity-based relationship on firm value.

Keywords: Asian financial crisis, bank relations, firm performance, ownership structure, Thailand

Suggested Citation

Limpaphayom, Piman and Polwitoon, Sirapat, Bank Relationship and Firm Performance: Evidence from Thailand Before the Asian Financial Crisis. Available at SSRN: https://ssrn.com/abstract=618315

Piman Limpaphayom (Contact Author)

Sasin GIBA of Chulalongkorn University ( email )

Chula 12, Phyathai Road
Bangkok, 10330
Thailand
662 2184058 (Phone)
662 2153797 (Fax)

Sirapat Polwitoon

Sigmund Weis School of Business, Susquehanna University ( email )

514 University Ave.
Selinsgrove, PA 17870
United States
570-372-4749 (Phone)

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