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What’s Common to Relationship Banking and Relationship Investing? Reflections within the Contractual Theory of the Firm

Doris Neuberger
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Doris Neuberger: University of Rostock

Finance from University Library of Munich, Germany

Abstract: The financial systems in continental Europe are subject to profound changes in the institutions of market exchange. Banks traditionally holding close relationships with firms are substituted by non-bank institutional investors. The present paper examines whether this implies a substitution of relationship finance by arm’s length finance or of firm-like organization by market exchange. Within the contractual theory of the firm, we seek common features of relationship banking and relationship investing. Extending the governance structure approach, we show that both are hybrid organizations, whose comparative advantages depend on two kinds of asset specificity. They are complements to finance and control firms with different redeployability and information opaqueness of assets.

Keywords: banks; institutional investors; financial systems; corporate governance; markets vs. hierachies; theory of the firm (search for similar items in EconPapers)
JEL-codes: G20 G30 L14 L22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-fin and nep-fmk
Date: 2005-10-01
Note: Type of Document - pdf; pages: 24
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