Distressed relationships: lessons from the Norwegian banking crisis

  • This paper measures the economy-wide impact of bank distress on the loss of relationship benefits. We use the near-collapse of the Norwegian banking system during the period 1988 to 1991 to measure the impact of bank distress announcements on the stock prices of firms maintaining a relationship with a distressed bank. We find that although banks experience large and permanent downward revisions in their equity value during the event period, firms maintaining relationships with these banks face only small and temporary changes, on average, in stock price. In other words, the aggregate impact of bank distress on the real economy appears small. We analyze the cross-sectional variation in firm abnormal returns and find that firms that maintain international bank relationships suffer more upon announcement of bank distress.

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Author:Steven OngenaORCiDGND, David C. Smith, Dag Michalsen
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2000,01
Series (Serial Number):CFS working paper series (2000, 01)
Document Type:Working Paper
Year of Completion:2000
Year of first Publication:2000
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:Norwegian banking crisis; bank distress; bank relationship
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL-Classification:C Mathematical and Quantitative Methods / C4 Econometric and Statistical Methods: Special Topics / C41 Duration Analysis
Licence (German):License LogoDeutsches Urheberrecht