Bank Relationship and Firm Performance: Evidence From Thailand Before the Asian Financial Crisis

Authors: Piman Limpaphayom; Sirapat Polwitoon

Source: Journal of Business Finance & Accounting, Volume 31, Numbers 9-10, November 2004 , pp. 1577-1600(24)

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Abstract:

This study examines the relation between bank relations and market performance in Thailand, an economy in which commercial banks play a crucial role through lending relationship and, for a number of companies, equity ownership. Overall, bank relationships, both equity-based and debt-based, positively affect capital investment. However, there is a negative relation between lending relationships, both short-term and long-term, and market performance indicating that bank lending may not always be consistent with value maximization. There is also evidence of a positive marginal effect of bank monitoring through equity ownership on market performance. Further, the relation between bank equity ownership and market performance appears to be non-linear with a concave function. Ownership by corporate insiders is also negatively related to bank equity ownership. Overall, the findings highlight the detrimental effects of excessive short-term debt usage, one of the factors believed to contribute to the financial crisis in Thailand, and the marginal benefit of the equity-based relationship on firm value.

Keywords: Asian financial crisis; bank relations; firm performance; ownership structure; Thailand

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.0306-686X.2004.00585.x

Publication date: 2004-11-01