A number of studies in the recent financial literature have suggested that firms with close relationships to banks should have better access to investment capital, and consequently different investment behaviour than independent firms. Many of the theoretical models in this field have sprung from the imperfect capital markets hypothesis suggested by the Modigliani-Miller Theorem. These studies have concluded that in the presence of imperfect capital markets, financial factors are important in the firm's real investment decisions. Diamond (1984) and others have suggested that banks have an important role to play in channelling funds to the firm. The bank-firm relationship is also seen as promoting critical information exchange, which leads to higher productivity and better resource allocation within the firm. Porter (1992), for example, points directly to German firm ownership by banks as a probable significant factor in explaining the high German productivity and investment observed in recent decades.

In Discussion Paper No. 1329, Julie Ann Elston presents evidence supporting the theory that informational and incentive problems in capital markets affect firm investment. This hypothesis is tested by estimating investment equations for two groups of German manufacturing firms. The first group of firms are those with bank ownership, suggesting lower costs to banks of obtaining information and better access to capital for the firm. The second group contains independent firms, that are expected to face greater external financing costs and liquidity constraints. Findings support the hypothesis of greater investment sensitivity to liquidity constraints, as well as increased investment sensitivity over time, for the group of independent firms.