Financial fragility and the number of bank relationships

We test the hypothesis that firms maintain many bank relationships to reduce the risk of premature liquidation of their investment projects arising out of the information asymmetry between firms and banks. Using the data of large Japanese manufacturing firms of the early 1990s, we find a negative relation between the number of bank relationships of a firm and the health of the primary banks, which is consistent with the hypothesis. Furthermore, a negative relationship is only observed for firms for whom access to bond markets was constrained. The result suggests that the availability of bond financing provides firms with an alternative to having many bank relationships.論説(Article)application/pd