Bank Relationship and Firm Performance: Evidence From Thailand Before the Asian Financial Crisis

Authors

  • Piman Limpaphayom,

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  • Sirapat Polwitoon

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      The authors are respectively from Sasin GIBA of Chulalongkorn University, Bangkok, Thailand; and the Sigmund Weis School of Business, Susquehanna University, USA. They wish to thank Natee Iam-opas of IRS, Ltd. (Thailand), Pichit Akrathit of the SEC (Thailand) and Masahiro Yoshikawa of JSRI for valuable information. They are also indebted to Jonathan Karpoff, Kenneth A. Kim, Gene C. Lai, Ragha Vendra Rau, S. Ghon Rhee, Anil Shivdasani and the anonymous referee for valuable comments on earlier drafts of this paper. Special thanks are due to William K. Yap for his technical assistance. This study received support from the CBA Summer Research Grant and the Pacific-Basin Capital Market Research Center at the University of Rhode Island.


Piman Limpaphayom, Sasin Graduate Institute of Business Administration of Chulalongkorn University, Chula 12, Phyathai Road, Bangkok 10330, Thailand.
e-mail: piman.limpaphayom@sasin.edu

Abstract

Abstract:  This study examines the relation between bank relations and market performance in Thailand, an economy in which commercial banks play a crucial role through lending relationship and, for a number of companies, equity ownership. Overall, bank relationships, both equity-based and debt-based, positively affect capital investment. However, there is a negative relation between lending relationships, both short-term and long-term, and market performance indicating that bank lending may not always be consistent with value maximization. There is also evidence of a positive marginal effect of bank monitoring through equity ownership on market performance. Further, the relation between bank equity ownership and market performance appears to be non-linear with a concave function. Ownership by corporate insiders is also negatively related to bank equity ownership. Overall, the findings highlight the detrimental effects of excessive short-term debt usage, one of the factors believed to contribute to the financial crisis in Thailand, and the marginal benefit of the equity-based relationship on firm value.

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