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Bank-firm Relationships: A Review of the Implications for Firms and Banks in Normal and Crisis Times

In: The Economics of Interfirm Networks

Author

Listed:
  • Hans Degryse

    (KU Leuven and CEPR)

  • Vasso Ioannidou

    (Lancaster University)

  • Steven Ongena

    (University of Zurich, SFI and CEPR)

Abstract

Banks are important providers of external finance to firms. In order to solve asymmetric information problems, firms and banks often engage in bank-firm relationships. Relationship banking occurs when a bank and a borrower enter multiple mutual interactions and both parties invest in obtaining some counterparty specific information, binding bank and firm, to a certain degree, to each other. This chapter starts with a discussion of reasons for having exclusive versus non-exclusive relationships. It provides a concise overview on the determinants of the number and intensity of bank-firm relationships, and reviews how relationship banking generates costs and benefits for both banks and firms. We show that on average bank-firm relationships generate value for both. The costs and benefits of bank-firm relationships, however, vary substantially with whether an economy is in normal or crisis times.

Suggested Citation

  • Hans Degryse & Vasso Ioannidou & Steven Ongena, 2015. "Bank-firm Relationships: A Review of the Implications for Firms and Banks in Normal and Crisis Times," Advances in Japanese Business and Economics, in: Tsutomu Watanabe & Iichiro Uesugi & Arito Ono (ed.), The Economics of Interfirm Networks, edition 127, chapter 9, pages 177-189, Springer.
    • Handle: RePEc:spr:advchp:978-4-431-55390-8_9
    DOI: 10.1007/978-4-431-55390-8_9
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    Citations

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    Cited by:

    1. Bersch, Johannes & Degryse, Hans & Kick, Thomas & Stein, Ingrid, 2020. "The real effects of bank distress: Evidence from bank bailouts in Germany," Journal of Corporate Finance, Elsevier, vol. 60(C).
    2. Egarius, Damien & Weill, Laurent, 2016. "Switching costs and market power in the banking industry: The case of cooperative banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 42(C), pages 155-165.
    3. Botsch, Matthew & Vanasco, Victoria, 2019. "Learning by lending," Journal of Financial Intermediation, Elsevier, vol. 37(C), pages 1-14.

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