Universal banks and relationships with firms : [Version Mai 2003]

  • Some of the most widely expressed myths about the German financial system are concerned with the close ties and intensive interaction between banks and firms, often described as Hausbank relationships. Links between banks and firms include direct shareholdings, board representation, and proxy voting and are particularly significant for corporate governance. Allegedly, these relationships promote investment and improve the performance of firms. Furthermore, German universal banks are believed to play a special role as large and informed monitoring investors (shareholders). However, for the very same reasons, German universal banks are frequently accused of abusing their influence on firms by exploiting rents and sustaining the entrenchment of firms against efficient transfers of firm control. In this paper, we review recent empirical evidence regarding the special role of banks for the corporate governance of German firms. We differentiate between large exchangelisted firms and small and medium sized companies throughout. With respect to the role of banks as monitoring investors, the evidence does not unanimously support a special role of banks for large firms. Only one study finds that banks´ control of management goes beyond what nonbank shareholders achieve. Proxyvoting rights apparently do not provide a significant means for banks to exert management control. Most of the recent evidence regarding small firms suggests that a Hausbank relationship can indeed be beneficial. Hausbanks are more willing to sustain financing when borrower quality deteriorates, and they invest more often than arm´s length banks in workouts if borrowers face financial distress.

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Author:Ralf Elsas, Jan Pieter KrahnenORCiDGND
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2003,20
Series (Serial Number):CFS working paper series (2003, 20)
Document Type:Working Paper
Year of Completion:2003
Year of first Publication:2003
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:Hausbank; corporate finance; corporate governance; relationship lending; universal banking
GND Keyword:Deutschland; Universalbank; Betrieb; Firma; Gewerbebetrieb; Unternehmen; Lieferant; Corporate Governance; Finanzierung; Unternehmensentwicklung
Issue:Version Mai 2003
Revised version forthcoming in "The German Financial System", edited by Jan P. Krahnen and Reinhard H. Schmidt, Oxford University Press. September 2003.
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht