Empirical Evidence on Firm-Bank Relationships in the G-8 Countries

This study sets out to explore the relationships between the banking and night-industry types of nonbanking sectors of the G8 over the years of 1994-2004—before the Kyoto Protocol was enacted in 2005. Our findings show that these relationships are still conditional upon the financial structure of these countries, including financial systems, regulations on banking activities, bank competition and the protection of the rights of creditors. By extending the Shen and Huang (2003) approach into different industries, this study provides additional information on firm-bank relationships among nine major industries with a longer period analysis. Bank concentrations intensify firm-bank relationships; that is, improving the banking sector through an overall increase in bank concentration can help to improve the performance of the non-banking sector. A bank-based system mitigates the relationship between bank performance and firm performance by bringing the inter-temporal smoothing function into operation. Unlike separated banks, universal banks tend to intensify the relationship between the performance of the firms and the banks as mere myopic investors. One rather unexpected result is the finding that this relationship is intensified by the existence of appropriate methods of protection for the rights of creditors.