Multiple Banking Relationships: Evidence from the Italian Experience

18 Pages Posted: 15 May 2003

See all articles by Stefania Cosci

Stefania Cosci

University Lumsa

Valentina Meliciani

LUISS Guido Carli University - LUISS Business school

Abstract

Despite the growing theoretical literature on multiple banking relationships, empirical studies investigating the determinants of the number of bank-lending relationships are very scant. The purpose of this paper is to fill this gap. Using a new data set provided by a large Italian bank we provide econometric evidence that the number of banking relationships is increasing in firms' leverage and in the riskiness of the sector in which the firm operates. This evidence suggests that firms must engage in multiple banking relationships in order to satisfy their demand for leverage and is consistent with an interpretation of the multiple banking relationship "puzzle" based on the behaviour of the bank. A large bank may find it optimal to finance many firms for a small share of their total leverage rather than fully financing a smaller number of firms in order to share risk and to maximize the number of customers.

Suggested Citation

Cosci, Stefania and Meliciani, Valentina, Multiple Banking Relationships: Evidence from the Italian Experience. The Manchester School, Vol. 70, pp. 37-54, 2002. Available at SSRN: https://ssrn.com/abstract=325139

Stefania Cosci (Contact Author)

University Lumsa

Via della Traspontina
Roma, Rome 00192
Italy

Valentina Meliciani

LUISS Guido Carli University - LUISS Business school ( email )

Viale Pola 12
Rome, 00198
Italy

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