Firms and their distressed banks: lessons from the Norwegian banking crisis (1988-1991)

Dag Michalsen, Steven Ongena and David C. Smith

No 686, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We use the near-collapse of the Norwegian banking system during the period 1988-91 to measure the impact of bank distress announcements on the stock prices of firms maintaining a relationship with a distressed bank. We find that although banks experienced large and permanent downward revisions in their equity value during the event period, firms maintaining relationships with these banks faced only small and temporary changes, on average, in stock price. In other words, the aggregate impact of bank distress on listed firms in Norway appears small. Our results stand in contrast to studies that document large welfare declines to similar borrowers after crises hit Japan and other East Asian countries. We hypothesize that because banks in Norway are precluded from maintaining significant ownership control over loan customers, Norwegian firms were freer to choose financing from sources other than their distressed banks. We provide cross-sectional evidence to support this hypothesis.

Keywords: Bank failures; Financial crises - Norway (search for similar items in EconPapers)
Date: 2000
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.federalreserve.gov/pubs/ifdp/2000/686/default.htm (text/html)
http://www.federalreserve.gov/pubs/ifdp/2000/686/ifdp686.pdf (application/pdf)

Related works:
Working Paper: Firms and their distressed banks: lessons from the Norwegian banking crisis (1988-1991) (2001)
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:fip:fedgif:686

Access Statistics for this paper

More papers in International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().