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Bank–SMEs relationships and banks’ risk-adjusted profitability

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  • Fredriksson, Antti
  • Moro, Andrea

Abstract

This research investigates how SME performance, the typology of loans and the length and scope of relationships between small banks and SMEs affect the margin adjusted for the risk that each customer generates. After analysing 4285 firm-year observations from Finnish banks, the quality of a SME’s performance is found to be the major factor in explaining the risk-adjusted profitability of banks. However, the length and scope of a relationship and the loan dimensions also play an important role.

Suggested Citation

  • Fredriksson, Antti & Moro, Andrea, 2014. "Bank–SMEs relationships and banks’ risk-adjusted profitability," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 67-77.
    • Handle: RePEc:eee:jbfina:v:41:y:2014:i:c:p:67-77
    DOI: 10.1016/j.jbankfin.2013.12.026
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    2. Estefanía Palazuelos & Ángel Herrero Crespo & Javier Montoya del Corte, 2018. "Effect of perceived default risk and accounting information quality on the decision to grant credit to SMEs," Risk Management, Palgrave Macmillan, vol. 20(2), pages 121-141, May.
    3. Sin Tian Ho, Cynthia & Wilhelmsson, Mats, 2019. "Accessibility of bank branches and new firm formation in Sweden," Working Paper Series 19/8, Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance.
    4. Mascia, Danilo V. & Rossi, Stefania P.S., 2017. "Is there a gender effect on the cost of bank financing?," Journal of Financial Stability, Elsevier, vol. 31(C), pages 136-153.
    5. Aleksandr Kljucnikov & Jaroslav Belas, 2016. "Approaches Of Czech Entrepreneurs To Debt Financing And Management Of Credit Risk," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 11(2), pages 343-365, June.
    6. Bashir Ahmed Maow, 2021. "The Impact of Small and Medium Enterprises (SMEs) on Economic Growth and Job Creation in Somalia," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 8(1), pages 45-56, January.
    7. Naradda Gamage, Sisira Kumara & Ekanayake, EMS & Abeyrathne, GAKNJ & Prasanna, RPIR & Jayasundara, JMSB & Rajapakshe, PSK, 2019. "Global Challenges and Survival Strategies of the SMEs in the Era of Economic Globalization: A Systematic Review," MPRA Paper 98419, University Library of Munich, Germany.
    8. Iván Arribas & Emili Tortosa-Ausina & TingTing Zhu, 2021. "Optimal capital structure, model uncertainty, and European SMEs," Working Papers 2021/11, Economics Department, Universitat Jaume I, Castellón (Spain).
    9. Huang, Jing & Yang, Wensheng & Tu, Yiliu, 2020. "Financing mode decision in a supply chain with financial constraint," International Journal of Production Economics, Elsevier, vol. 220(C).

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    More about this item

    Keywords

    Small bank performance; Relationships between small banks and SMEs; Risk-adjusted profitability;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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