Termination of Bank-Firm Relationships

Kiyotaka Nakashima and Koji Takahashi

MPRA Paper from University Library of Munich, Germany

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.

Keywords: matched lender-borrower data; bank-firm relationship; capital crunch; evergreening; flight to quality; duration effect; long-term contract. (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2016-01-06
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