The value of bank relationships: Evidence from Belgium at the start of the Great Depression

We analyze the impact of bank relationships on the performance of Belgian firms listed on the Brussels stock exchange at the start of the Great Depression, in 1929–1931. Most of these firms were affiliated with one or more banks via interlocking directorships. Taking into account the number of affiliated banks and their size, the proportion of bank directors on the board, and the number of board seats held by bank directors, we find that bank affiliations did not affect stock returns in 1929. On the other hand, firm value was positively related to the number of board seats held by the firm directors before 1929, but not after 1929. This result holds for both bank directors and other directors. Combined, our results suggest that firms did not derive any benefits from bank affiliations at the start of the Great Depression.