Distressed Relationships

Lessons from the Norwegian Banking Crisis

S. Ongena, D.C. Smith, D. Michalsen

Research output: Working paperDiscussion paperOther research output

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Abstract

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.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages46
Volume2000-13
Publication statusPublished - 2000

Publication series

NameCentER Discussion Paper
Volume2000-13

Fingerprint

Banking crisis
Distress
Announcement
Stock prices
Equity
Bank relationships
Small economies
Abnormal returns
Banking system

Keywords

  • bank relationship
  • bank distress
  • Norwegian banking crisis

Cite this

Ongena, S., Smith, D. C., & Michalsen, D. (2000). Distressed Relationships: Lessons from the Norwegian Banking Crisis. (CentER Discussion Paper; Vol. 2000-13). Tilburg: Finance.
Ongena, S. ; Smith, D.C. ; Michalsen, D. / Distressed Relationships : Lessons from the Norwegian Banking Crisis. Tilburg : Finance, 2000. (CentER Discussion Paper).
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Ongena, S, Smith, DC & Michalsen, D 2000 'Distressed Relationships: Lessons from the Norwegian Banking Crisis' CentER Discussion Paper, vol. 2000-13, Finance, Tilburg.

Distressed Relationships : Lessons from the Norwegian Banking Crisis. / Ongena, S.; Smith, D.C.; Michalsen, D.

Tilburg : Finance, 2000. (CentER Discussion Paper; Vol. 2000-13).

Research output: Working paperDiscussion paperOther research output

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N2 - 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.

AB - 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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Ongena S, Smith DC, Michalsen D. Distressed Relationships: Lessons from the Norwegian Banking Crisis. Tilburg: Finance. 2000. (CentER Discussion Paper).