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Effects of main bank switching on new business bankruptcy

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  • Yuta Ogane

Abstract

This paper examines the effects of main bank switching on the probability of bankruptcy of new small businesses using a propensity score matching estimation approach. We use a unique firm-level dataset of approximately 1,000 small and medium-sized enterprises (SMEs) incorporated in Japan; these SMEs are young and unlisted just after incorporation. We find that switching main bank relationships increases the probability of firm bankruptcy. In addition, the result holds only when the relationship between the firm and its main bank is terminated. Specifically, the probability of bankruptcy increases when firms switch their main banks to financial institutions with which they have not previously transacted, and when the ex-post main banks are not affiliated financial institutions of their ex-ante main banks. These results may be because such switching worsens the financial condition of client firms, and thus, it leads to bankruptcy.

Suggested Citation

  • Yuta Ogane, 2019. "Effects of main bank switching on new business bankruptcy," Applied Economics, Taylor & Francis Journals, vol. 51(59), pages 6286-6308, December.
    • Handle: RePEc:taf:applec:v:51:y:2019:i:59:p:6286-6308
    DOI: 10.1080/00036846.2019.1616067
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    Cited by:

    1. Jaka Cepec & Peter Grajzl, 0. "Management turnover, ownership change, and post-bankruptcy failure of small businesses," Small Business Economics, Springer, vol. 0, pages 1-27.
    2. Jaka Cepec & Peter Grajzl, 2021. "Management turnover, ownership change, and post-bankruptcy failure of small businesses," Small Business Economics, Springer, vol. 57(1), pages 555-581, June.
    3. Agostino, Mariarosaria & Errico, Lucia & Rondinella, Sandro & Trivieri, Francesco, 2023. "Enduring lending relationships and european firms default," Research in Economics, Elsevier, vol. 77(4), pages 459-477.
    4. Eriko Naiki & Yuta Ogane, 2020. "Bank soundness and bank lending to new firms during the global financial crisis," Review of Financial Economics, John Wiley & Sons, vol. 38(3), pages 513-541, July.
    5. Song Zhang & Liang Han & Konstantinos Kallias & Antonios Kallias, 2022. "Bank switching of US small businesses: new methods and evidence," Review of Quantitative Finance and Accounting, Springer, vol. 58(4), pages 1573-1616, May.

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