The Value of Durable Bank Relationships: Evidence from Korean Banking Shocks
46 Pages Posted: 10 Jan 2001
Date Written: November 2000
Using a large sample of exogenous events that negatively affected Korean banks during the 1997-1998 period, we examine the value of durable bank relationships in Korea. We show that adverse shocks to banks have a negative effect not only on the value of the banks themselves, but also on the value of their client firms, and that this adverse effect on firm value is a decreasing function of the financial health of both banks and client firms. Our results are concentrated in the second half of the sample period, when banks experienced severe difficulties.
Keywords: Exogenous events, Bank, Durable bank relationship, Financial health of banks, Main bank, Bank-centered financial systems, Firm value, Bank distress, Nonperforming loan ratio, Banking shocks, Firm characteristics
JEL Classification: G21, G32, G33
Suggested Citation: Suggested Citation