Distressed relationships: Lessons from the Norwegian banking crisis

Steven Ongena, David C. Smith and Dag Michalsen

No 2000/01, CFS Working Paper Series from Center for Financial Studies (CFS)

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.

Keywords: bank relationship; bank distress; Norwegian banking crisis (search for similar items in EconPapers)
JEL-codes: C41 G21 (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (3)

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Working Paper: Distressed Relationships: Lessons from the Norwegian Banking Crisis (2000)
Working Paper: Distressed Relationships: Lessons from the Norwegian Banking Crisis (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:200001

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