Does bank relationship matter for corporate risk-taking? Evidence from listed firms in Taiwan

Single-bank or multiple-bank relationship can play a role in the degree of corporate risk-taking that inspires financing decisions. We study whether or not the magnitude of corporate risk-taking is associated with bank relationship. We employ the public firms in Taiwan with the sample period from 20...

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Bibliographic Details
Published in:The North American journal of economics and finance 2013-12, Vol.26, p.323-338
Main Authors: Chan, Chia-Chung, Lin, Bing-Huei, Chang, Yung-Ho, Liao, Wei-Chen
Format: Article
Language:English
Subjects:
Bank relationship
Banks
Corporate finance
Corporate risk-taking
Decision analysis
Firm size
Growth opportunity
Risk management
Studies
Volatility
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Summary:Single-bank or multiple-bank relationship can play a role in the degree of corporate risk-taking that inspires financing decisions. We study whether or not the magnitude of corporate risk-taking is associated with bank relationship. We employ the public firms in Taiwan with the sample period from 2001 to 2005 and select three variables centered on earnings volatility and share price volatility as the proxies for corporate risk-taking. The empirical evidence suggests that multiple-bank relationship can drive firms to take higher risks under information asymmetry between banks and firms. The results remain unchanged even after controlling for the main-bank effect. Finally, we observe that firms with smaller size and higher growth opportunity tend to enhance the degree of corporate risk-taking as they develop multiple-bank relationship.
ISSN:1062-9408
1879-0860
DOI:10.1016/j.najef.2013.02.008