Combining Arm'S-Length and Control-Oriented Finance Evidence from Main Bank Relationships in Sweden

Comparative Corporate Governance: The State of the Art and Emerging Research, Ed. Klaus J. Hopt, Hideki Kanda, Mark J. Roe, Eddy Wymeersch, and Stefan Prigge, Clarendon Press, Oxford 1998

Posted: 1 Oct 1999

See all articles by Erik Berglöf

Erik Berglöf

Institute of Global Affairs, London School of Economics and Political Science

Hans Sjogren

Stockholm University

Abstract

The close and stable relationships between the large commercial banks and non-financial corporations in Sweden came under severe strain over the last decade. The financial system experienced wide-ranging financial deregulation and a rapid expansion of bank lending followed by a dramatic banking crisis and a severe contraction of credits. Using detailed, confidential, and internationally unique data on individual credit contracts, this paper documents the main bank relationships and their evolution during this period. The main findings are: (1) firms continue to rely on a single dominant bank lender throughout the period; (2) the turnover of main bank relationships increases dramatically; (3) the level of bank exposure in individual firms jumps as a result of both higher credit volumes and falling collateralization of credits; (4) many firms establish a second, underutilized, credit facility with another bank; (5) main banks have less collateral than these side banks; and (6) main banks have substantial ownership of equity in borrower firms through related institutions. The strong link between lending and such indirect equity ownership is perhaps the most striking aspect of the Swedish main bank arrangement, and equity holdings are important in sustaining these relationships.

Suggested Citation

Berglöf, Erik and Sjogren, Hans, Combining Arm'S-Length and Control-Oriented Finance Evidence from Main Bank Relationships in Sweden. Comparative Corporate Governance: The State of the Art and Emerging Research, Ed. Klaus J. Hopt, Hideki Kanda, Mark J. Roe, Eddy Wymeersch, and Stefan Prigge, Clarendon Press, Oxford 1998, Available at SSRN: https://ssrn.com/abstract=163971

Erik Berglöf (Contact Author)

Institute of Global Affairs, London School of Economics and Political Science ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Hans Sjogren

Stockholm University

Universitetsvägen 10
Stockholm, Stockholm SE-106 91
Sweden

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,461
PlumX Metrics