What Determines the Number of Bank Relationships? Cross-Country Evidence

We investigate the determinants of multiple-bank relationships using a new data set comprised of 1129 firms across twenty European countries. We first document large cross-country variation in the average number of bank relationships per firm, exposing a richness in the financial systems of European countries that goes beyond simply being termed quot;bank-dominated.quot; We find, after controlling for firm and industry-specific characteristics, that the average number of bank relationships per firm is non-monotonically related to the fragility of a country?s banking system and negatively related to the efficiency of its bankruptcy process and enforcement of creditor rights. Moreover, we find that although concentrated banking systems reduce the number of bank relationships, public bond markets have a complementary effect and increase the average number of banks per firm. We extend our analysis to industry-level effects and also study the robustness of our results using a different data set on bank relationships in Norway. Overall, our study provides a rich set of results that should aid in sorting out theories in banking, corporate governance and financial system architecture