On the Persistence of Relationship Banking within a Bank-Based Financial System
Post-Crisis Evidence from German SMEs
Summary
Excerpt
Table Of Contents
- Cover
- Title Page
- Copyright Page
- About the author
- About the book
- Citability of the eBook
- Overview
- Table of contents
- List of figures
- List of tables
- List of abbreviations
- 1 Introduction
- 1.1 The importance and relevance of relationship banking
- 1.2 Thesis structure
- 2 Theoretical foundations
- 2.1 Principal-agent theory
- 2.1.1 Principal-agent conflict
- 2.1.2 Conflicts of interest, information asymmetries, and the resulting risks
- 2.1.3 Instruments to reduce risk and governance systems
- 2.2 Financial intermediation in the context of principal-agent theory
- 2.2.1 The theory of financial intermediation
- 2.2.2 The role of banks
- 2.2.3 Incentive problems in bank lending
- 2.3 Characteristics of market- and bank-based financial systems
- 2.3.1 Market-based financial systems
- 2.3.2 Bank-based financial systems
- 2.3.3 Key differences between market- and bank-based financial systems
- 2.4 Relationship lending versus arm’s-length lending
- 2.4.1 Arm’s-length lending
- 2.4.2 Relationship lending
- 2.5 The German banking system and disruptive changes
- 2.5.1 The current transformation of the German banking system
- 2.5.2 Development of corporate financing of non-financial companies
- 2.5.3 Regulatory consequences of the 2007–2009 financial crisis
- 2.5.4 New market entrants into the financial and banking system
- 2.6 SMEs and family firms
- 2.6.1 Definition of family firms
- 2.6.2 Performance of family firms
- 2.6.3 Financing of family firms
- 2.7 Deriving the research model on relationship banking
- 2.7.1 Literature review on the economic costs and benefits of relationship banking
- 2.7.2 Evidence from market-based financial systems
- 2.7.2.1 Loan characteristics
- Scope and finance share
- 2.7.2.2 Relationship characteristics
- Information asymmetries and trust and loan officers
- Number of bank lending relationships
- Duration of lending relationship
- Financial distress
- 2.7.2.3 Firm characteristics
- 2.7.2.4 Control variables
- 2.7.3 Evidence from bank-based financial systems
- 2.7.3.1 Loan characteristics
- Scope and finance share
- 2.7.3.2 Relationship characteristics
- Information asymmetries, trust and loan officers
- Number of lending relationships
- Duration of lending relationship
- Bank type and distance
- Financial distress
- 2.7.3.3 Firm characteristics
- 2.7.3.4 Control variables
- 2.7.4 Differences between market- and bank-based financial systems
- 2.7.5 Summary of empirical findings
- 2.8 Deriving the hypotheses based on the research model on relationship banking
- 2.8.1 Determinants of bank relationships
- Country
- Firms
- Banks
- 2.8.2 Characteristics of bank relationships
- Loan characteristics
- Relationship characteristics
- Firm characteristics
- 3 Data and methodology
- 3.1 Data collection methods
- 3.2 Sample design, pretest, and data collection
- 3.3 Survey design
- 3.4 Endogenous variables
- Collateral Requirements
- Cost of Debt
- Credit Availability
- 3.5 Exogenous variables
- Loan characteristics
- Relationship characteristics
- Firm characteristics
- Control variables
- 3.6 Analytical methods
- 3.6.1 Ordinary least squares
- 3.6.2 The assumptions underlying the least squares method
- 3.6.3 The logit model
- 3.6.4 The probit model
- 3.7 Robustness tests of data
- 4 Empirical evaluation
- 4.1 Descriptive statistics
- 4.1.1 Firm characteristics and control variables
- 4.1.2 Loan characteristics
- 4.1.3 Endogenous variables
- 4.1.4 Relationship characteristics
- 4.1.5 Family firms versus non-family firms
- 4.2 Multivariate analyses
- 4.2.1 Full sample - Collateral requirements
- 4.2.2 Full sample - Collateral type
- 4.2.3 Full sample - Cost of debt
- 4.2.4 Full sample - Credit availability
- 4.2.5 Family versus non-family firms - Collateral requirements
- 4.2.6 Family firms versus non-family firms - Cost of debt
- 4.2.7 Family firms versus non-family firms - Credit availability
- 5 Concluding remarks
- 5.1 Summary and discussion of the main results
- 5.2 Limitations and avenues for future research
- 6 References
- Appendix
Figure 2-1: Basic model of the principal-agent relationship
Figure 2-2: Direct finance - Each investor monitors the borrowing firm
Figure 2-3: Intermediated finance - The bank monitors the borrowing firm
Figure 2-4: Germany’s three-pillar banking system
Figure 2-5: Components of corporate financing
Figure 2-7: Global studies by geography
Figure 2-8: Year of publication
Figure 2-9: Distribution of third-party databases and firm surveys
Figure 4-2: Distribution of companies by age and size
Figure 4-3: Distribution of companies according to the sales growth and equity ratio
Figure 4-4: Distribution of companies by industry
Figure 4-5: Family firm assessment
Figure 4-6: Frequency of bank financing
Figure 4-7: Credit interest rate
Figure 4-8: Duration measured by average number of bank relationships
Figure 4-9: Finance share according to sales growth
Table 2-1: Incentive problems in the principal-agent relationship
Table 2-2: Structure of outstanding liabilities of non-financial corporations in Germany
Table 2-3: Number of bank branches in Germany compared to the previous year
Table 2-4: Top 10 German banks by balance sheet total for the financial years 2015 and 2016
Table 2-5: Distribution of studies
Table 2-6: Panel A – Collateral requirements, Panel B – Cost of debt, Panel C – Credit availability
Table 2-7: Number of bank relationships in market- versus bank-based financial systems
Table 2-8: Duration of bank relationships in market- versus bank-based financial systems
Table 3-1: Definition of endogenous and exogenous variables
Table 3-2: Overview of analytical methods
Table 3-3: Values of cumulative probability functions
Table 4-1: Summary of firm, loan, and relationship characteristics
Table 4-2: Number of banks according to average firm size, age, and finance share
Table 4-3: Overview of variables of family firms versus non-family firms
Table 4-4: Differences between family firms and non-family firms
Table 4-5: Probit regression – Full sample – Collateral requirements
Table 4-6: Probit regression – Full sample – Personal guarantees
Table 4-7: Ordinary least squares – Full sample – Cost of debt
Table 4-8: Probit regression – Full sample – Credit availability
Table 4-9: Probit regression – Family firm versus non-family firm sample – Collateral requirements
Table 4-10: Ordinary least squares – Family firm versus non-family firm sample – Cost of debt
Table 4-11: Probit regression – Family firm versus non-family firm sample – Credit availability
Table 5-1: Overview of confirmed and rejected hypotheses
Table 5-2: Matrix - Variables for bank lending terms and conditions
Table A-1: Correlation matrix – Spearman
Table A-2: Correlation matrix – Pearson
Table A-3: Correlation matrix – Kendall’s tau
Table A-4: Probit regression – Full sample – Collateral requirements with family firm variable
Table A-5: Ordinary least squares – Full sample – Cost of debt with family firm variable
Table A-6: Probit regression – Full sample – Credit availability with family firm variable
1.1 The importance and relevance of relationship banking
In recent years, the world has witnessed a rapid restructuring of the financial market and banking landscape, primarily due to the 2007-2009 worldwide financial crisis and the subsequent increase in competition. Banks are under pressure from declining profits, and many are struggling with high amounts of non-performing, or “distressed,” loans. In some Southern European countries, the share of non-performing loans in certain bank portfolios is more than 45 %. Such distressed loans were one of the primary causes of the global financial crisis (Tauber 2017). Policymakers have ratcheted up the pressure on banks to reduce the number of distressed loans in their portfolios in an effort to prevent future crises. In addition to the regulatory consolidation through the Basel Accords, e.g., the implementation of leverage ratio requirements in 2013, banks are expected to take further action to reduce the risk of their day-to-day business activities (Bank for International Settlements 2014).
“In the aftermath of the recent financial crisis, many banks became either unwilling or unable to provide financing to companies. […] This development is especially striking given the traditionally close financing relationships between German corporations and banks” (Mietzner, Schweizer, and Proelss 2018, p. 375). Moreover, corporations tried to reduce their need for bank loans in the post-crisis period (Davis and Stone 2004; Deutsche Bundesbank 2012; Nassr and Wehinger 2015). As a result of these developments, German financing methods underwent some radical shifts, particularly with respect to external financing, which was much more volatile than internal financing after the crisis.
Generally, the ratio between internal and external financing has varied sharply over time. While in the past banks were the main lenders, they have gradually lost some luster in favor of other creditors such as affiliated companies (Deutsche Bundesbank 2012; European Central Bank 2017a, 2017b). During economic downturns, companies typically resort to bank financing. Likewise, this change is also related to bank supply-side factors, such as stricter credit standards during economic downturns, and rising regulatory requirements, which have increased the relevance of alternative funding sources. The significance of bank loans, especially for small and medium-sized enterprises (SMEs), decreased. However, bank loans still represent the single most important source of external financing, despite the fact that their overall intermediation services through traditional credit business has declined (Deutsche Bundesbank 2012).
Details
- Pages
- 352
- Publication Year
- 2020
- ISBN (PDF)
- 9783631804773
- ISBN (ePUB)
- 9783631804780
- ISBN (MOBI)
- 9783631804797
- ISBN (Hardcover)
- 9783631802687
- DOI
- 10.3726/b16252
- Language
- English
- Publication date
- 2019 (November)
- Keywords
- Relationship lending Housebank Financial crisis Financial system Family firms SMEs Market stability
- Published
- Berlin, Bern, Bruxelles, New York, Oxford, Warszawa, Wien, 2020. 352 pp., 22 fig. b/w, 30 tables.
- Product Safety
- Peter Lang Group AG
