The effect of banking relationships on the future of financially distressed firms

Claire M. Rosenfeld

Journal of Corporate Finance, 2014, vol. 25, issue C, 403-418

Abstract: In this study I empirically examine U.S. publicly traded firms to determine the impact of banking relationships on the future of financially distressed firms. Results demonstrate that obtaining a relationship-backed loan in the six months prior to distress identification significantly increases the probability of future firm emergence from distress. However, this effect decreases as the severity of firm distress increases. These results are robust to variations in banking relationship measures and to addressing endogeneity. This study provides evidence consistent with the value of lending relationships stemming from the ease of transmission of “soft” information within the lender's organization.

Keywords: Corporate finance; Financial distress; Banking relationships (search for similar items in EconPapers)
JEL-codes: G20 G30 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:25:y:2014:i:c:p:403-418

DOI: 10.1016/j.jcorpfin.2014.01.003

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