Firms and their distressed banks: Lessons from the Norwegian banking crisis (1988-1991)

By Steven R. G. Ongena, David C. Smith, Dag Michalsen. 2000

181 citations recorded by the source corpus.

We use the near-collapse of the Norwegian banking system during the period 1988-91 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 experienced large and permanent downward revisions in their equity value during the event period, firms maintaining relationships with these banks faced only small and temporary changes, on average, in stock price. In other words, the aggregate impact of bank distress on listed firms in Norway appears small. Our results stand in contrast to studies that document large welfare declines to similar borrowers after crises hit Japan and other East Asian countries. We hypothesize that because banks in Norway are precluded from maintaining significant ownership control over loan customers, Norwegian firms were freer to choose financing from sources other than their distressed banks. We provide cross-sectional evidence to support this hypothesis.

Subfields: Finance

View Paper: https://www.semanticscholar.org/paper/92c6b1759fca999da4290800fc37f877df84ed96

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Citations in the corpus

Interbank Liquidity Crunch and the Firm Credit Crunch: Evidence from the 2007--2009 Crisis (2013, background): “…is also related to the strands of literature that study in general the costs of banking crises (Bernanke 1983; Bernanke and Lown 1991; Peek and Rosengreen 2000; Ongena, Smith, and Michalsen 2003; Calomiris and Mason 2003; Gan 2007; Dell’Ariccia, Detragiache, and Rajan 2008; Iyer and Peydró 2011).”
Understanding Bank Runs: The Importance of Depositor-Bank Relationships and Networks (2012, unknown): “1 For the costs of banking crises, see e.g. Friedman and Schwartz, 1963; Bernanke, 1983; Ongena et al., 2003; Calomiris and Mason, 2003b; Dell'Ariccia et al., 2008.”
The value of durable bank relationships: evidence from Korean banking shocks $ (2002, unknown): “Ongena, Smith, and Michalsen (2000) measure the impact of bank distress announcements on the stock prices of firms maintaining a relationship with a distressed bank, using the near-collapse of the Norwegian banking system during the 1988-1991 period.”
Endogenous Product Differentiation in Credit Markets: What do Borrowers Pay for? (2005, unknown): “22In fact Ongena, Smith, and Michalsen (2003) nd that rms listed on Oslo Stock Exchange that maintained a banking relationship with any of the problem banks during the announcements of the banks distress events, on average only had small and temporary negative excess returns around the distress…”
So What Do I Get? The Bank's View of Lending Relationships (2007, unknown): “Overall, compared to the impact of relationships in the market for loans their impact in the debt underwriting market is economically weaker.(41) (41)We also use an alternative underwriting strength definition (RETAIN) m , where this takes the value of 1 if a bank m was retained as either the “Lead ”
Bank Risk Taking and Liquidity Creation Following Regulatory Interventions and Capital Support (2011, unknown): “…public knowledge as well.11 When customers become aware of the banks’ distress, they may reduce their demand for loans and other banking services (for details see, e.g., Slovin, Sushka, and Poloncheck (1993); Cornett and Tehranian (1994); Ongena, Smith, and Michalsen (2003); Watanabe (2007)).”
The Real Effects of Asset Market Bubbles: Loan- and Firm-Level Evidence of a Lending Channel (2007, unknown): “As is discussed in more detail later, however, the results in the subsequent work are mixed (e.g. Bae, Kang, and Lim, 2002 and Ongena, Smith, and Michalsen, 2003).”