Le LGCO recevra le 25 septembre à 14h Stéphanie Serve du THEMA – Université Cergy-Pontoise pour un séminaire.

Multiple banking relationships: do firms mistrust their banks?

The case of privately held French SMEs

Catherine Refait-Alexandre and Stéphanie Serve

Abstract

A vast majority of French firms are privately held, and small and medium-sized. Because these SMEs have difficulties to access alternatives financing sources, they remain very dependent from bank financing. In this context, our paper focuses on the use of multiple banking by private SMEs. We investigate whether multiple banking relationships are explained by firms’ characteristics (size, age, performance and risk) or by the quality of banking relationship as measured by the trust the firm feels toward its main bank. We use the results of an original survey conducted on a sample of French SMEs in December 2012. According to the traditional theoretical framework of multiple banking, we find that the most performing firms are more likely to engage in multiple banking relationships. We also highlight the explanatory power of an alternative model based on two characteristics of the banking relationship, distance and trust: when the manager is closer to his loan officer, or when he expresses the desire to build a valuable relationship, then the firm will be less likely to engage in multiple banking relationship.

Keywords: multiple banking relationships, trust, credit rationing, and financial crisis.

JEL Classification: G21, G32