Universal Banks and Relationships with Firms

Jan-Pieter Krahnen and Ralf Elsas

No 4224, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Some of the most widely expressed myths about the German financial system are concerned with the close ties and intensive interaction between banks and firms, often described as Hausbank relationships. Links between banks and firms include direct shareholdings, board representation, and proxy voting and are particularly significant for corporate governance. Allegedly, these relationships promote investment and improve the performance of firms. Furthermore, German universal banks are believed to play a special role as large and informed monitoring investors (shareholders). For the very same reasons, however, German universal banks are frequently accused of abusing their influence on firms by exploiting rents and sustaining the entrenchment of firms against efficient transfers of firm control. In this Paper, we review recent empirical evidence regarding the special role of banks for the corporate governance of German firms. We differentiate between large exchange-listed firms and small and medium sized companies throughout. With respect to the role of banks as monitoring investors, the evidence does not unanimously support a special role of banks for large firms. Only one study finds that banks? control of management goes beyond what non-bank shareholders achieve. Proxy-voting rights apparently do not provide a significant means for banks to exert management control. Most of the recent evidence regarding small firms suggests that a Hausbank relationship can indeed be beneficial. Hausbanks are more willing to sustain financing when borrower quality deteriorates, and they invest more often than arm?s-length banks in workouts if borrowers face financial distress.

Keywords: Relationship lending; Hausbank; Universal banking; Corporate finance; Corporate governance (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Date: 2004-02
New Economics Papers: this item is included in nep-cfn, nep-his and nep-mfd
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP4224 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:4224

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP4224

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().