Bank relationships and firm profitability

This paper examines how bank relationships affect firm performance. An empi rical implication of recent theoretical models is that firms maintaining mu ltiple bank relationships are less profitable than their single-bank peers. We investigate this empirical implication using a data set containing virt ually all Norwegian publicly listed firms for the period 1979-1995. We find a robust and economically relevant negative two-way correspondence between the number of relationships and sales profitability. We also find that fir ms replacing a single relationship are on average smaller and younger than those firms choosing not to replace a single relationship.