We thank the Federal Reserve Bank of Atlanta for research support and Linda Mundy for her editorial assistance. We also thank Sabrina Auci, Gianluca Cubadda, Scott Frame, Scott Hein, Robert Marquez, Enrico Santarelli, Tuomas Takalo, Giovanni Trovato, Chris Tucci, and participants in sessions at the XV International Tor Vergata Conference on Banking and Finance and at the Southern Finance Association for helpful comments and suggestions. Two anonymous referees provided helpful, detailed suggestions. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.
Bank Relationships and Firms' Financial Performance: The Italian Experience
Article first published online: 21 JAN 2010
© 2010 Blackwell Publishing Ltd
European Financial Management
Volume 18, Issue 1, pages 28–67, January 2012
How to Cite
Castelli, A., Dwyer, G. P. and Hasan, I. (2012), Bank Relationships and Firms' Financial Performance: The Italian Experience. European Financial Management, 18: 28–67. doi: 10.1111/j.1468-036X.2009.00531.x
- Issue published online: 21 JAN 2010
- Article first published online: 21 JAN 2010
- bank relationships;
- small business lending;
- firms' performance
We examine the connection between the number of bank relationships and firms' performance using a unique data set on Italian small firms for which banks are a major source of financing. Our evidence indicates that return on equity and return on assets decrease as the number of bank relationships increases with a stronger effect on small firms than large firms. We also find that interest expense over assets increases as the number of relationships increases. Particularly for small firms, these results are consistent with analyses suggesting that fewer bank relationships reduce information asymmetries and agency problems and outweigh hold-up problems.