Year: 1999
Type: preprint
Abstract: The paper examines the role of bank relationships in business closures during the Finnish economic crisis of the early 1990s. We utilise a unique panel data set of 474 small and medium-sized firms, for which we have standard accounting information and for which we can in addition identify whether the firm had a lending relationship with the most troubled part of the banking system, namely the Savings Bank of Finland and Skopbank. By estimating a logit model we find that, even accounting for the effects of liquidity, profitability, indebtedness, age and size, firms that had a lending relationship with the savings banks concerned were more likely to close in 1992 than other firms that year or the same firms in other years. Thus being a loan customer of these banks entailed greater risk for firms than having a lending relationship with other intermediaries only in 1992, which was the year the banking sector came to a head. The result lends support to the hypothesis that financial factors affect real outcomes not only through firm and household balance sheets but also through bank behaviour.
DOI: 10.2139/ssrn.1021233
Authors: Helvi Kinnunen, Vesa Vihriälä
Institution: Bank of Finland
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1521879068