Inter-Firm Relationships and the Special Role of Common Banks

51 Pages Posted: 19 Feb 2021 Last revised: 10 Mar 2021

See all articles by Emanuela Giacomini

Emanuela Giacomini

University of Florida - Warrington College of Business Administration

Nitish Kumar

University of Florida

Andy Naranjo

University of Florida

Date Written: December 16, 2020

Abstract

Using a novel dataset that combines information on customer-supplier trade relationships with information on firm-bank lending relationships, we show that common banks that lend to firms at both ends of a trade link strengthen such trade relationships. We use bank mergers that generate exogenous variations in presence of common banks to establish causality and show that common bank relationships between customers and suppliers increase trade relationships by 41.5%. The role of common bank is greater for more opaque supply chains and when the common bank is more informed. We argue that common banks bridge information gaps between trading partners and mitigate hold-up problems. Consistent with this hypothesis, we show that firms with a higher share of trading partners with whom they also share common banks have more concentrated customer base and invest more in relationship specific assets. Lastly, we show that common banks played a central role in facilitating provision of trade credit by suppliers during the Great Recession. Overall, our findings show the unique role of banks in driving inter-firm growth.

Keywords: supply chain, bank relationship, customer concentration, information asymmetry, hold-up problems, economic growth, financial intermediation, trade credit

JEL Classification: G21, G30, G32, L14

Suggested Citation

Giacomini, Emanuela and Kumar, Nitish and Naranjo, Andy, Inter-Firm Relationships and the Special Role of Common Banks (December 16, 2020). Available at SSRN: https://ssrn.com/abstract=3750250 or http://dx.doi.org/10.2139/ssrn.3750250

Emanuela Giacomini

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

Nitish Kumar (Contact Author)

University of Florida ( email )

Gainesville, FL 32611
United States

Andy Naranjo

University of Florida ( email )

Gainesville, FL
United States

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