There is a large body of theoretical work that shows that information problems in the capital market have important effects on both the financial structure and the investment policy of the firm. These information problems arise when debt and equity are diffusely held and no individual investor has an incentive to monitor the firm. We test the hypothesis that banks can compensate for capital market imperfections due to asymmetric information. We find that the neoclassical investment model cannot be rejected for a sample of Spanish firms with a close bank relationship while it is rejected for the subsample made up of the remaining firms. An augmented model incorporating borrowing constraints yields the opposite results. These results suggest that banks may play a role in alleviating capital market imperfections in Spain.