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Bank connections, corporate investment and crisis

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  • Espenlaub, Susanne
  • Khurshed, Arif
  • Sitthipongpanich, Thitima

Abstract

Against the backdrop of a severe financial crisis and extensive restructuring of the financial sector, we investigate the evolution and determinants of connections between firms and banks, and the impact of bank connections on corporate investment. Our study examines Thai non-financial companies during 1995–2000, a period straddling the East Asian Financial Crisis of 1997–1998. Before the crisis, bank-connections are common and associated with significantly lower sensitivity of corporate investment to internal cash flow. After the crisis, and following substantial changes in bank ownership and governance due to financial-sector reforms and restructuring, far fewer firms are bank-connected and connections no longer affect investment–cash flow sensitivity.

Suggested Citation

  • Espenlaub, Susanne & Khurshed, Arif & Sitthipongpanich, Thitima, 2012. "Bank connections, corporate investment and crisis," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1336-1353.
    • Handle: RePEc:eee:jbfina:v:36:y:2012:i:5:p:1336-1353
    DOI: 10.1016/j.jbankfin.2011.11.024
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    More about this item

    Keywords

    Bank connections; Financial crisis; Investment–cash flow sensitivity; Family firms;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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