What's Common to Relationship Banking and Relationship Investing? Reflections within the Contractual Theory of the Firm

23 Pages Posted: 10 Oct 2005

See all articles by Doris Neuberger

Doris Neuberger

University of Rostock - Department of Economics

Date Written: February 10, 2005

Abstract

The financial systems in continental Europe are subject to profound changes in the institutions of market exchange. Banks traditionally holding close relationships with firms are substituted by non-bank institutional investors. The present paper examines whether this implies a substitution of relationship finance by arm's length finance or of firm-like organization by market exchange. Within the contractual theory of the firm, we seek common features of relationship banking and relationship investing. Extending the governance structure approach, we show that both are hybrid organizations, whose comparative advantages depend on two kinds of asset specificity. They are complements to finance and control firms with different redeployability and information opaqueness of assets.

Keywords: Banks, institutional investors, financial systems, corporate governance, markets vs. hierachies, theory of the firm

JEL Classification: G20, G30, L14, L22

Suggested Citation

Neuberger, Doris, What's Common to Relationship Banking and Relationship Investing? Reflections within the Contractual Theory of the Firm (February 10, 2005). Available at SSRN: https://ssrn.com/abstract=818384 or http://dx.doi.org/10.2139/ssrn.818384

Doris Neuberger (Contact Author)

University of Rostock - Department of Economics ( email )

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