Relationship Banking, Liquidity, and Investment in the German Industrialization

36 Pages Posted: 13 Nov 1998

See all articles by Caroline Fohlin

Caroline Fohlin

Emory University; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: December 16, 1997

Abstract

Close bank relationships are thought to ameliorate firms' liquidity constraints--a phenomenon frequently measured by liquidity sensitivity of investment. Using a panel of German firms during the formative years of universal banking (1903-1913), this paper shows that, even controlling for selection bias, investment is more sensitive to internal liquidity for bank-networked firms than unattached firms. The firm exhibiting the greatest liquidity sensitivity, however, faced no apparent liquidity constraints. The findings yield two implications: they support recent research rejecting a linear relationship between liquidity sensitivity and financing constraints, and they suggest that relationship banking provides no consistent lessening of firms' liquidity sensitivity.

JEL Classification: N83

Suggested Citation

Fohlin, Caroline, Relationship Banking, Liquidity, and Investment in the German Industrialization (December 16, 1997). Available at SSRN: https://ssrn.com/abstract=139049 or http://dx.doi.org/10.2139/ssrn.139049

Caroline Fohlin (Contact Author)

Emory University ( email )

Dept. of Economics
Atlanta, GA Georgia 30322
United States
4047276363 (Phone)

HOME PAGE: http://https://scholar.google.com/citations?user=Ma08bxEAAAAJ&hl=en

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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