Finance, Control, and Profitability: The Influence of German Banks

50 Pages Posted: 11 Nov 2003

See all articles by Robert S. Chirinko

Robert S. Chirinko

University of Illinois at Chicago, Department of Finance; CESifo (Center for Economic Studies and Ifo Institute)

Julie Ann Elston

Oregon State University - Cascades Campus; Oregon State University

Date Written: November 2003

Abstract

Bank intermediated finance has been cited frequently as the preferred means for channeling funds from savers to firms. Germany is the prototypical economy where universal banks allegedly exert substantial influence over firms. Despite frequent assertions about the considerable power of German banks and the advantages of a bank relation, empirical support is mixed. With a unique dataset and a focus on the fragility/sturdiness of inferences, this paper evaluates German bank influence in terms of three hypotheses: 1) Do bank influenced firms enjoy lower finance costs? [No]; 2) Is bank influence a solution to control problems? [Yes]; 3) Do bank influenced firms have higher profitability? [No]. Coupled with results about the control consequences of concentrated ownership, these results suggest that bank influence serves as a substitute control mechanism, one of several available for addressing corporate control problems.

Keywords: German banks, corporate finance and governance

JEL Classification: G21, G32, G34

Suggested Citation

Chirinko, Robert S. and Elston, Julie Ann, Finance, Control, and Profitability: The Influence of German Banks (November 2003). CESifo Working Paper Series No. 1073. Available at SSRN: https://ssrn.com/abstract=466081

Robert S. Chirinko (Contact Author)

University of Illinois at Chicago, Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States

HOME PAGE: http://tigger.uic.edu/~chirinko/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Julie Ann Elston

Oregon State University - Cascades Campus ( email )

2600 NW College Way
Bend, OR 97701
United States

Oregon State University ( email )

228 Cascades Hall
2600 College Way
Bend, OR 97701
United States

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