Distressed Relationships: Lessons from the Norwegian Banking Crisis (1988-1991)

44 Pages Posted: 11 Feb 2000

See all articles by Steven Ongena

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

David C. Smith

University of Virginia - McIntire School of Commerce

Dag Michalsen

BI Norwegian Business School

Date Written: December 1, 1999

Abstract

This paper measures the economy-wide impact of bank distress on the loss of relationship benefits. We use the near-collapse of the Norwegian banking system during the period 1988 to 1991 to measure the impact of bank distress announcements on the stock prices of firms maintaining a relationship with a distressed bank. We find that although banks experience large and permanent downward revisions in their equity value during the event period, firms maintaining relationships with these banks face only small and temporary changes, on average, in stock price. In other words, the aggregate impact of bank distress on the real economy appears small. We analyze the cross-sectional variation in firm abnormal returns and find that firms that maintain international bank relationships suffer more upon announcement of bank distress.

JEL Classification: G21, C41

Suggested Citation

Ongena, Steven R. G. and Smith, David Carl and Michalsen, Dag, Distressed Relationships: Lessons from the Norwegian Banking Crisis (1988-1991) (December 1, 1999). Available at SSRN: https://ssrn.com/abstract=198748 or http://dx.doi.org/10.2139/ssrn.198748

Steven R. G. Ongena (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

David Carl Smith

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

Dag Michalsen

BI Norwegian Business School ( email )

Nydalsveien 37
N-0442 Oslo, N-0442
Norway
4746410512 (Phone)

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