What Determines the Number of Bank Relationships? Cross-Country Evidence

51 Pages Posted: 1 May 1998

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

Multiple version iconThere are 2 versions of this paper

Abstract

We investigate the determinants of multiple-bank relationships using a new data set comprised of 1129 firms across twenty European countries. We first document large cross-country variation in the average number of bank relationships per firm, exposing a richness in the financial systems of European countries that goes beyond simply being termed "bank-dominated." We find, after controlling for firm and industry-specific characteristics, that the average number of bank relationships per firm is non-monotonically related to the fragility of a country?s banking system and negatively related to the efficiency of its bankruptcy process and enforcement of creditor rights. Moreover, we find that although concentrated banking systems reduce the number of bank relationships, public bond markets have a complementary effect and increase the average number of banks per firm. We extend our analysis to industry-level effects and also study the robustness of our results using a different data set on bank relationships in Norway. Overall, our study provides a rich set of results that should aid in sorting out theories in banking, corporate governance and financial system architecture.

JEL Classification: G21, C41

Suggested Citation

Ongena, Steven R. G. and Smith, David Carl, What Determines the Number of Bank Relationships? Cross-Country Evidence. Available at SSRN: https://ssrn.com/abstract=79588 or http://dx.doi.org/10.2139/ssrn.79588

Steven R. G. Ongena (Contact Author)

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

Sch├Ânberggasse 1
Z├╝rich, 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

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