Mainbanks and Investment Efficiency in Financial Distress
We explore the effects of mainbanks on investment efficiency financial distress. The previous literature argues that firms with close financial relationships with banks have lower costs of financial distress because of reduced underinvestment problem. Although benefits may accrue to such close relationships, we contend shortcomings are possible as well. A firm in financial distress without a mainbank may be forced to reduce investment or sell assets to a buyer who has a higher value. However, for a firm with a mainbank, this disciplinary force is weakened. To firms with poor investment opportunities the presence of mainbanks may actually induce an overinvestment problem. The empirical findings reported here are consistent with this idea.
Year of publication: |
2000
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Authors: | Reeb, David M ; Kwok, Chuck C Y |
Published in: |
Journal of Financial Research. - Southern Finance Association - SFA, ISSN 0270-2592. - Vol. 23.2000, 4, p. 395-410
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Publisher: |
Southern Finance Association - SFA Southwestern Finance Association - SWFA |
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