Essays on relationship banking

This dissertation consists of three essays on relationship banking. The first chapter introduces the whole thesis. The second chapter studies how professional connections between firm and bank influence their banking relationships. Particularly, by focusing on the directors’ past employment with firms or banks, the study verifies that connections lower the information barrier and facilitate the transfer of firm-specific information. The third chapter is motivated by an exogenous shock to the CDS market called “small bang”. Exploiting lending and CDS data at firm-bank level, the study examines how changes in CDS positions as well as newly commenced CDS trading between a firm and bank increased bank’s lending exposures to the referenced firms. The last chapter introduces a still-overlooked element, the number of industries the firm operates in, to the wide and on-going empirical investigation on firm-bank relationships. Estimating a three-stage selection model, the results show that a higher number of industries the firm operates in corresponds to a higher likelihood of relationship multiplicity and a higher number of bank relationships. The dissertation introduces less-investigated elements to the relationship banking literature. By looking at how these elements play a role in firm-bank relationships, the dissertation confirms the effect of relationship banking as a method to reduce information asymmetry and monitor firm risks.