Do Banks Influence the Capital Structure Choices of Firms?

39 Pages Posted: 28 Mar 2006

See all articles by Petra Danisevska

Petra Danisevska

Erasmus University Rotterdam (EUR) - Department of Financial Management

Abe de Jong

Rotterdam School of Management, Erasmus University

Marno Verbeek

Erasmus University - Rotterdam School of Management; Erasmus Research Institute of Management (ERIM); Netspar

Date Written: 23 2004 6,

Abstract

This paper investigates three capital structure decisions  leverage, debt maturity and the source of debt  in a simultaneous setting. Moreover, we investigate whether these choices are influenced by the involvement of banks in a firm. Our results based on a panel of Dutch firms show that bank relationships, measured by interlocking board memberships and equity ownership, have a significant impact on the relations among the three capital structure choices. First, less bank involvement strengthens the positive impact of leverage on maturity. This is consistent with the liquidity risk theory, because involved banks help firms to mitigate liquidity risk. Second, bank debt negatively effects leverage in firms with bank interlocks, while this relation is absent in firms without such bank involvement. This result suggests that banks maximize the value of their loans by reducing overall leverage. Third, we find a strong trade-off between bank debt and maturity, which is independent of the degree of bank involvement.

Keywords: capital structure, debt maturity, bank relationships, international economics, financial economics, source of debt

JEL Classification: M, M41, G3, G32, G21, F30

Suggested Citation

Danisevska, Petra and de Jong, Abe and Verbeek, Marno, Do Banks Influence the Capital Structure Choices of Firms? (23 2004 6,). ERIM Report Series Reference No. ERS-2004-040-F&A. Available at SSRN: https://ssrn.com/abstract=875483

Petra Danisevska (Contact Author)

Erasmus University Rotterdam (EUR) - Department of Financial Management ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands
+31 10 408 1276 (Phone)
+31 10 408 9017 (Fax)

Abe De Jong

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-25
Rotterdam, 3000 DR
Netherlands
+31 10 408 1022 (Phone)

HOME PAGE: http://https://www.rsm.nl/people/abe-de-jong/

Marno Verbeek

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands
+31 10 408 2790 (Phone)

HOME PAGE: http://www.rsm.nl/mverbeek

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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