Abstract
We show that the creation of new bank relationships was effective to ease the credit constraints of firms in the aftermath of the 2008–09 financial crisis: firms that started new bank relationships were able to maintain or even increase their outstanding loans. These firms were generally larger and better performers (higher profitability, investments and growth improved the possibility to start new credit relationships). On the opposite, access to new credit lines was more difficult for small and more opaque firms, for which a long-term relationship with their main bank has been the most effective way to mitigate financing constraints. Finally, geographical proximity matters for bank relationships: the closer the firms are to the lending banks, the lower is the probability of closing a credit relationship and the higher of starting a new one.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
Differences across banks have been related to their size and capitalization (Albertazzi and Marchetti 2010; Barboni and Rossi 2011), funding structure (Bonaccorsi di Patti and Sette 2012; Ivashina and Scharfstein 2010; Iyer et al. 2014) and internal organization (Del Prete et al. 2017). De Mitri et al. (2010) looked at the characteristics of bank relationships, showing that bank loans grew even during the crisis for firms with long-lasting relationships with banks.
In 2011 a new financial shock due to the Sovereign debt crisis within the euro area hit the Italian economy.
Detragiache et al. (2000), using a sample from the Survey of Industrial Firms by Mediocredito Centrale, show that the median firm has credit relationships with five different banks. However, the mode of the distribution of the number of credit relationships is equal to 3.
From the last data available, the accounts of the banks are reconstructed backwards in order to exclude closures or openings of credit relationships due to bank mergers or acquisitions and so avoid overestimating the number of bank relationships begun or ended.
The existence of a threshold is a source of concern owing to the possible confounding effect. When the credit line falls below the threshold, it is no longer detected by the Italian Central Credit Register. Our main concern is to avoid inflating the firms’ mobility because of the change in the threshold at the beginning of 2009 (from 75,000 euro to 30,000 euro). We therefore continue to assume a fictitious threshold of 75,000 euros, in order to neutralize all movements near the threshold. In other words, if we observe a credit relationship in period t but not in period t + 1, we consider this occurrence a real closure only if the amount of credit initially granted was greater than €75,000. Similarly, when we observe for the first time a credit relationship in period t, we consider it a real opening only if the new credit granted is above €75,000 in order to disregard small changes in the loans granted around the CR threshold. In this way we significantly reduce the confounding effects of the threshold. Following this rule, we increase the number of observations classified as stay (rather than switch, drop or open) by 5%. All the estimates were confirmed when we assumed either a fictitious threshold of 100,000 euros or none.
As robustness, the estimates are then replicated using a multinomial probit model. Results are confirmed. The estimates are available upon request.
We substitute firm balance-sheet variables at firm level with firm fixed effects.
To compute the duration of the credit relationship between the bank and the firm, we consider the first occurrence after the year 2000, in which it appears in the Credit Register.
However, at this stage, we cannot exclude that banks whose headquarters are located in the same geographical area of the firm may be “captured”; in other words banks may be induced by political and social context to financially support even not fully creditworthy firms.
References
Agarwal S, Hauswald R (2010) Distance and private information in lending. Rev Financ Stud 23:2757–2788
Albertazzi U, Marchetti DJ (2010) Credit supply, flight to quality and evergreening: an analysis of bank-firm relationships after Lehman. Temi di discussione (working papers) No 756, Bank of Italy
Alessandrini P, Presbitero AF, Zazzaro A (2009) Banks, distances and firms’ financing constraints. Rev of Financ 13(2):261–307
Bank of Italy (2009) Survey of industrial and service firms in 2008. In: Supplements to the Statistical Bulletin, No. 38
Barboni G, Rossi C (2011) Does your neighbour know you better? Local banks and credit tightening in the financial crisis. Bank of Italy, Mimeo
Barone G, Felici R, Pagnini M (2011) Switching costs in local credit markets. Int J Ind Organ 29:694–704
Berger AN, Udell GF (1995) Relationship lending and lines of credit in small firm finance. J Bus 68:351–382
Berger AN, Udell GF (2002) Small business credit availability and relationship lending: the importance of bank organisational structure. Econ J 112:32–53
Bolton P, Freixas X, Gambacorta L, Mistrulli PE (2013) Relationship and transaction lending in a crisis. Temi di Discussione (working papers) No 917, Bank of Italy
Bonaccorsi di Patti E, Sette E (2012) Bank balance sheets and the transmission of financial shock to borrowers: evidence from the 2007–2008 crisis. Temi di Discussione (working papers) No 848, Bank of Italy
Boot AWA (2000) Relationship banking: what do we know? J Financ Intermed 9:7–25
De Mitri S, Gobbi G, Sette E (2010) Relationship lending in a financial turmoil. Temi di Discussione (working papers) No 772, Bank of Italy
Degryse H, Masschelein N, Mitchell J (2011) Staying, dropping, or switching: the impacts of bank mergers on small firms. Rev Financ Stud 24:1102–1140
Del Giovane P, Eramo G, Nobili A (2011) Disentangling demand and supply in credit developments: a survey-based analysis for Italy. J Bank Financ 35:2719–2732
Del Prete S, Pagnini M, Rossi P, Vacca V (2017) Lending organization and credit supply during the 2008–2009 crisis. Econ Notes 46:207–235
Detragiache E, Garella P, Guiso L (2000) Multiple versus single banking relationships: theory and evidence. J Financ 55:1133–1161
Farinha LA, Santos JAC (2002) Switching from single to multiple bank lending relationships: determinants and implications. J Financ Intermed 11:124–151
Gopalan R, Udell GF, Yerramilli V (2011) Why do firms form new banking relationships? J Financ Quant Anal 46:1335–1365
Ioannidou V, Ongena S (2010) Time for a change: loan conditions and bank behavior when firms switch banks. J Financ 65:1847–1877
Ivashina V, Scharfstein D (2010) Bank lending during the financial crisis of 2008. J Financ Econ 97:319–338
Iyer R, Peydró J, da-Rocha-Lopes S, Schoar A (2014) Interbank liquidity crunch and the firm credit crunch: evidence from the 2007–2009 crisis. Rev Financ Stud 27:347–372
Kim M, Kliger D, Vale B (2003) Estimating switching costs: the case of banking. J Financ Intermed 12:25–56
Ongena S, Smith DC (2000) What determines the number of bank relationships? cross-country evidence. J Financ Intermed 9:26–56
Panetta F, Signoretti FM (2010) Domanda e offerta di credito in Italia durante la crisi finanziaria. Questioni di Economia e Finanza (Occasional papers) No 63, Bank of Italy
Rajan RG (1992) Insiders and outsiders: the choice between informed and arm’s-length debt. J Financ 47:1367–1400
Robb AM, Robinson DT (2012) The capital structure decisions of new firms. Rev Financ Stud 27(1):153–179
Sharpe SA (1990) Asymmetric information, bank lending, and implicit contracts: a stylized model of customer relationships. J Financ 45:1069–1087
Acknowledgements
The authors wish to thank Monica Andini, Daniele Coin, Cristina Demma, Alessio d’Ignazio, Luca Giaccherini, Giorgio Gobbi, Paolo E. Mistrulli, Stefano Monferrà, Marcello Pagnini, Federico M. Signoretti, the participants at seminars held at the Bank of Italy and at the University of Modena and Reggio Emilia, and two anonymous referees for their helpful comments and suggestions. All remaining errors are the responsibility of the authors alone. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Bank of Italy.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Arnaudo, D., Micucci, G., Rigon, M. et al. Should I Stay or Should I Go? Firms’ Mobility Across Banks in the Aftermath of the Financial Crisis. Ital Econ J 5, 17–37 (2019). https://doi.org/10.1007/s40797-018-0081-7
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s40797-018-0081-7