DP9695 A Century of Firm ? Bank Relationships: Did Banking Sector Deregulation Spur Firms to Add Banks and Borrow More?

Author(s): Fabio Braggion, Steven Ongena
Publication Date: October 2013
Keyword(s): banking sector, competition, multiple banking
JEL(s): G21, N23, N24
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9695

We study how firm-bank relationships and corporate financing evolved during the Twentieth century in Britain. We document a remarkable transition from single to multiple relationships. Transparent, larger, and global companies were more likely to add a bank, especially when located in more competitive local banking markets. Deregulation and intensifying competition in the banking sector during the 1970s spurred banks to supply credit through multilateral arrangements. Firms that added a bank following deregulation borrowed more than similar firms that did not add a bank, and their bank debt expanded while their trade credit and share issuance contracted.