Firms and their main banks : Effects of main bank characteristics on firms' bank choice, R&D investment, and survival

Höwer, Daniel

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URN: urn:nbn:de:bsz:180-madoc-342942
Document Type: Doctoral dissertation
Year of publication: 2013
Place of publication: Mannheim
University: Universität Mannheim
Evaluator: Stahl, Konrad
Date of oral examination: 17 June 2013
Publication language: English
Institution: School of Law and Economics > VWL, Mikroökonomik (Stahl K.1988-2009, Em)
Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
Subject: 330 Economics
Classification: JEL:
Subject headings (SWD): Finanzierung
Keywords (English): Entrepreneurial Finance , Firm Survival , Bank Finance , R&D Investment , Main Bank Decision
Abstract: 1st paper: In this paper I study the effect of bank relationships in situations where firms are financially distressed. Does survival of financially distressed firms depend on their main bank relationship? I characterize the main bank relationship in four dimensions: First, the strength of the relationship. Second, market discipline and the characteristics of the main bank. Third, the main bank's ability to process soft information. Fourth, the degree of local banking market competition. Using data from 2000-2005, I estimate the probability that a financially distressed German firm exits the market. I find that firms with stronger bank relationships are less likely to leave the market. I control for the probability that a firm becomes financially distressed. I find that the bank type influences a firm's distress but not its market exit probability. 2nd paper: R&D investments are cornerstones for growth and competitive advantage of firms and whole economies. However, banks as the main provider of external funds for the vast majority of firms seem ill-equipped to provide the necessary funding. We question the dominant assumption that all banks suffer equally from information uncertainties and asymmetries in the evaluation of R&D. Instead, we argue that information externalities emerge from the information a bank can aggregate from the other firms in its portfolio. This positive effect of information access needs to be balanced with correlated risk concerns in the portfolio. We allow for industry differences with regards to underlying innovation uncertainties and signaling effects from the firms themselves. We test this model for more than 5,000 German firm observations, their main bank’s client portfolio and their R&D expenditures over a six year period. The theoretical predictions on information externalities and correlated risk concerns between a bank’s degree of industry specialization and its client’s R&D investment are supported. The potentials for altering the bank risk assessments through signaling are limited to patenting. Government R&D subsidies and venture capital investments have no additional signaling effect. Recommendations are derived based on these results. 3rd paper: Do firms select their main bank relationship according to their risk or risk preferences? Relationship banking is attractive for high risk firms since it improves their access to finance and provides liquidity insurance. Low risk firms instead may not want to bear the additional costs. I employ a nested logit model to study the determinants of the main bank relationship decision by newly established German firms. I find that firms that ask for bank support in case of financial distress are more likely to choose a relationship-oriented bank, such as a public or cooperative bank. Cost sensitive firms are more likely to choose a private bank. But I find no evidence that firms select a bank according to ex ante risk. Transaction oriented banks are not able to attract low risk firms.
Translation of the title: Unternehmen und ihre Hausbanken : Effekte der Charakteristika der Hausbank auf die Hausbankwahl der Unternehmen, Investitionen in Forschung und Entwicklung und das Überleben (German)

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