Multiple Bank Relationships and the Main Bank System: Evidence from a Matched Sample of Japanese Small Firms and Main Banks
Based on a matched sample of Japanese small firms and main banks we investigate the bank-firm relationships in the early 2000s. We obtain new findings. First, even small firms with a main bank relation have multiple bank relationships. Second, firms tied with a financially weak main bank increase the number of bank relations. Third, longer duration of a main bank relation increases the number of bank relations. Moreover we find that firms with fewer bank relations pledge personal guarantees to their main banks and are charged a higher interest rate. This suggests that firms take actions against the monopoly power of a main bank.
KeywordsCapital Ratio Loan Contract Main Bank Affiliate Firm Client Firm
An earlier version of this paper was presented at the seminar of the Research Project on Change in Financial and Industrial Structure of the Research Institute of Economy, Trade and Industry (RIETI), the workshop on Banking of the Centre for Research in Banking, Insurance and Finance (CIBIF) of the University of Groningen, and the Monetary Economics Workshop (MEW). We are grateful to Jan P.A.M. Jacobs and the participants of the seminar and workshop for helpful comments and suggestions. This research was partially supported by Grant-in-Aid for Scientific Research (16330038) from the Japanese Ministry of Education, Culture, Sports, Science and Technology from 2004 to 2006. Any remaining errors are the sole responsibility of the authors.
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