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Multiple banking relationships: the role of firm connectedness

Andrea Fracasso (), Valentina Peruzzi () and Chiara Tomasi ()

No 2019/3, DEM Working Papers from Department of Economics and Management

Abstract: The aim of this work is to shed light on the role that firm connectedness has on multiple bank relationships, controlling for other firm-level traditional determinants. Working on a large sample of Italian manufacturing firms, we develop novel measures of firm connectedness and multiple banking. We measure firm connectedness by exploiting the information on the number of connections that a non-financial firm has with any other non-financial firm through persons holding a position (including several types of appointments such as shareholder, administrator, technical or administrative worker, among others) in both companies. The paper finds empiri- cal evidence showing that firm connectedness is positively associated with the number of banks that provide credits to the firm. This e↵ect appears to be stronger for the younger, smaller and more indebted firms, thereby suggesting that firms’ connectedness favours their access to multiple sources of credit by reducing the negotiation and transaction costs that these compa- nies face to engage with lending banks, due to asymmetric information. Connectedness does not seem to reduce the incentives for the firms to expand the number of lenders to minimize hold-up risks.

Keywords: Multiple-bank lending; firm connectedness (search for similar items in EconPapers)
JEL-codes: F12 F14 F31 F41 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-ban
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