Termination of Bank-Firm Relationships

Nakashima, Kiyotaka and Takahashi, Koji (2016): Termination of Bank-Firm Relationships.

Abstract

Using a matched sample of Japanese banks and firms, we examine what factors determine the termination of the bank-firm relationship. The constraints on bank capital in a Japanese banking crisis increased relationship terminations, implying the presence of a capital crunch in it. Moreover, the "flight-to-quality" behavior of bank prevailed instead of "evergreening" in relationship terminations. We also found that a longer duration of the relationship strongly decreased the probability of termination when Japan's banking system was stable. Such duration effects weakened when the system was fragile, however, the longer duration still had the intertemporal smoothing effects of loan prices.

• Item Type: MPRA Paper
• Language: English
• Keywords: matched lender-borrower data, bank-firm relationship, capital crunch, evergreening, flight to quality, duration effect, long-term contract.
• Subjects: G - Financial Economics > G0 - General > G01 - Financial Crises; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation

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