This paper analyzes determinants of the incidence of relationship lending. We explore self-assessments of German universal banks with respect to their Hausbank status in corporate lending and relate loan contract and borrower characteristics to this attribution. The analysis shows that Hausbank status is positively related to better access to information and the bank's influence on borrower management. While the duration of the bank–borrower relationship is not related to Hausbank status, banks are more likely to be Hausbanks when their share of borrower debt financing is higher and when the number of bank relationships is lower. We also find that the likelihood of observing a Hausbank relationship is non-monotonically related to bank concentration in local debt markets. For low and intermediate values of concentration, Hausbank relationships become more likely as competition increases. This contradicts the conjecture that relation lending requires monopolistic market structures. Nevertheless, in highly concentrated markets, less competition fosters Hausbank relationships.

Single firm/single event (SFSE) studies are relevant in corporate finance. Since inference on abnormal returns in this context necessarily relies on the time series variance of these abnormal returns, the implied problem of heteroscedasticity is obvious, although hard to solve. We analyze robust inference in an SFSE setting using Monte Carlo and resampling experiments. Estimation is biased when the calibration and event period occur in different volatility regimes. We develop a unique specification test for these structural breaks. The most robust inference is obtained by using intraday data and a multiplicative component GARCH estimator.

Researchers in empirical corporate finance often use bounded ratios (e.g., debt ratios) as dependent variables in their regressions. Using the example of estimating the speed of adjustment toward target leverage, we show by Monte Carlo and resampling experiments that commonly applied estimators yield severely biased estimates, as they ignore that debt ratios are fractional (i.e., bounded between 0 and 1). We propose a new unbiased estimator for adjustment speed in the presence of fractional dependent variables that also controls for unobserved heterogeneity and unbalanced panel data. This new estimator is suitable for corporate finance applications beyond capital structure research.

The German financial market is often characterized as a bank-based system with strong bank–customer relationships. The corresponding notion of a housebank is closely related to the theoretical idea of relationship lending. It is the objective of this paper to provide a direct comparison between housebanks and “normal” banks as to their credit policy. Therefore, we analyze a new data set, representing a random sample of borrowers drawn from the credit portfolios of five leading German banks over a period of five years. We use credit-file data rather than industry survey data and, thus, focus the analysis on information that is directly related to actual credit decisions. In particular, we use bank-internal borrower rating data to evaluate borrower quality, and the bank’s own assessment of its housebank status to control for information-intensive relationships. The major results of our study support the view that housebanks are able to establish a distinct behavioral pattern consistent with the idea of long-term commitment. We find that housebanks do provide liquidity insurance in situations of unexpected deterioration of borrower ratings. With respect to loan pricing, we find no evidence for intra- or intertemporal price differentiation related to housebanking.

We study managers’ self-assessment of their firm’s financial constraint status to assess the validity of commonly used indicators of financial constraints. As categorizations based on common financial constraints measures lead to high misclassifications, we derive a new measure of financial constraints which performs well in-sample and out-of-sample for private firms. Applying our new measure to a large sample of private European firms, we find consistently lower investment-cash flow sensitivities and greater distortions in response to exogenous financing frictions for constrained firms across countries. Besides private firms, our new measure can also be applied to listed U.S. firms, as it reliably identifies constrained firms as measured by the occurrence of liquidity events and the incidence of an inelastic capital supply.

We use panel data from nine countries over the period 1996–2008 to test how revenue diversification affects bank value. Relying on a comprehensive framework for bank performance measurement, we find robust evidence against a conglomerate discount, unlike studies concerned with industrial firms. Rather, diversification increases bank profitability and, as a consequence also market valuations. This indirect performance effect does not depend on whether diversification was achieved through organic growth or through M&A activity. We further demonstrate that previous results in the literature on the impact of diversification on bank value presumably differ due to the way diversification is measured, and the negligence of the indirect value effect via bank profitability. Our evidence against a conglomerate discount in banking remains robust also during the sub-prime crisis.

We evaluate US firms’ leverage determinants by studying how firms paid for 2,073 very large investments between 1989 and 2006. This approach complements existing empirical work on capital structure, which typically estimates regression models of leverage for a broad set of firms. Because large investments are mostly externally financed, security issuances should provide information about managers’ attitudes toward leverage. We find that issued securities move firms toward target debt ratios. Firms also tend to issue more equity following a share price run-up, consistent with both the tradeoff hypothesis and managerial efforts to time market sentiment. We find little support for the standard pecking order hypothesis.