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Effects of bank debt relationships on corporate performance.

Ziemer, Wolfgang (2015) Effects of bank debt relationships on corporate performance. Doctoral thesis, University of Surrey.

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Abstract

‘Effects of bank debt relationships on corporate performance’ is an empirical survey based on a unique recent dataset regarding German manufacturing firms for the years 2003–2010. It seeks to understand the opportunities for German banks to offer services solely linked to information generated within loan-monitoring processes, relaxing the common assumption that banks are informationally disadvantaged because credit mar-kets do not perfectly equalize in prices but in the bank-optimal rate; the existence of red-lining and rationing demonstrates credit markets’ informational imperfection. The flow of information in credit markets is basically one way, and banks improve their abilities to distinguish borrowers to prevent related losses. Therefore, they are able to generate new information that is then used for further borrower evaluation. This newly generated information is assumed to be superior to borrowers’ knowledge, and borrowers might recognize and anticipate this information. Therefore, the informa-tional chain evolves into the proposed theory of the customer-improving loan-monitoring cycle. It is assumed to be true if borrowers with bank debt show better results than borrowers without. Related hypotheses regarding corporate performance preferably are tested by using return on equity. Additionally, net operating margin, net interest, and return on investment are checked for their patterns. They are supplemented by sus-tainability tests regarding the equity-to-debt ratio and the distance-to-default point to evaluate whether positive effects are based on chance or opportunistic behaviour. All performance hypotheses are rejected. Therefore, the proposed theory does not find support from the evidence, and banks’ informational disadvantage remains – even if their borrower evaluation is actually more detailed than before. Accordingly, the survey shows that loan monitoring does not offer informational links to generate new products or services, and banks remain limited to their already applied approaches. German cor-porate performance is basically convexly associated with firm size, and firm perform-ance clearly differs depending on firms’ riskiness. However, risky firms’ results are superior if they report bank debt because banks’ related monitoring generates moderat-ing effects. Thus, particularly risky firms are suggested to use bank debt.

Item Type: Thesis (Doctoral)
Divisions : Theses
Authors :
AuthorsEmailORCID
Ziemer, WolfgangWolfgang.Ziemer@hotmail.deUNSPECIFIED
Date : 31 July 2015
Funders : N/A
Contributors :
ContributionNameEmailORCID
Thesis supervisorHan, Liangl.han@surrey.ac.ukUNSPECIFIED
Thesis supervisorPal, Sarmisthas.pal@surrey.ac.ukUNSPECIFIED
Depositing User : Wolfgang Ziemer
Date Deposited : 11 Aug 2015 10:57
Last Modified : 11 Aug 2015 10:57
URI: http://epubs.surrey.ac.uk/id/eprint/808152

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