Banking Essay

9784 words - 39 pages

AMERICAN JOURNAL OF SOCIAL AND MANAGEMENT SCIENCES ISSN Print: 2156-1540, ISSN Online: 2151-1559, doi:10.5251/ajsms.2010.1.2.102.123
© 2010, ScienceHuβ, http://www.scihub.org/AJSMS
Banking relationship and credit terms: empirical evidence from Portuguese small firms
Miguel Neves Matias1, Zélia Serrasqueiro2 and Carlos Arriaga Costa3 1Management and Economics Department of Polytechnic Institute of Leiria and Management and Sustainability Research Center Leiria, Campus 2, Morro do Lena - Alto do Vieiro, 2411-
901 Leiria Apartado 4163, Portugal e-mail: miguel.matias@estg.ipleiria.pt
2Management and Economics Department, Beira Interior University, Estrada do Sineiro, 6200-209, Covilhã Portugal, and CEFAGE Research Center, Évora University
e-mail: zelia@ubi.pt 3Economics Department of Minho University, Campus de Gualtar
4710 - 057 Braga, Portugal e-mail:caac@eeg.uminho.pt
ABSTRACT
Based on a sample of Micro and Small-sized Enterprises (MSE) financed by a large Portuguese bank, this study seeks to assess the importance of the banking relationship for MSE to obtain better credit terms, i.e. higher credit limit, lower risk premium and less probability that collateral must be provided. We conclude that long term banking relationship alone is not important for firms to obtain better bank credit terms. However, greater borrowing concentration allows MSE to obtain a lower risk premium and a higher limit of credit. The magnitude of these impacts are affected by some specificities related to firm size, economic-financial performance and the position of the lending bank in the local banking market.
Keywords: Banking relationship; Credit terms; Small firms.
INTRODUCTION
Small businesses, which play a key role in generating employment and creating economic wealth, face restrictions in accessing bank credit and in the terms of loan conditions. The significant difficulties in accessing external finance arise partly from small firms´ financial fragility and the legal opacity of information that they give to the lenders. The relationship between accounting information and the economic-financial performance, actually in evidence, is frequently in question, given the freedom of accounting "elaboration", rarely audited, not rated and with multiple schemes for presenting their financial statements, leading to the minimization of the tax burden (Le Guirriec, 1996). It is in this context that assessment of the banking relationship acquires vital importance in determining the credit risk of Small and Medium-sized Enterprises (SME). SME operate in a particular context, characterised by heavy interdependence; between the "personal sphere" of the business-owner and the "business sphere"; and the administrative and financial
organization are characterized by informality of relationships; and, by the vital and dominant importance of the business-owner (Levin and Travis, 1987; Belletante and Levratto; 1995). Indeed, the profile, know-how, and...

Find Another Essay On banking

banking Essay

606 words - 3 pages default on their loans. Mortgage Backed Securities So how did these events affect the investment banking industry, and ultimately Campbell and Bailyn’s operations? Prior to the crisis, there was a new financial product being spun on Wall Street – mortgage backed securities. The concept and flow of these asset-backed securities was fairly simple: 1) An originator (who issues the mortgages) groups the cash flows from the mortgages into a large

Banking Essay

1354 words - 5 pages would consist of various task connected to Promotion and Marketing. Since the company has adjusted new transactional system ‘unistream” with the lowest commission charges in Prague, it needs promotion in order to create public awareness and attracte clients. As agreed on our meeting, I will take part in PR project (creation and realization), tasks will include: PR briefing, press release, research, advertising, online banking, PR and

Online Banking

1954 words - 8 pages Online Banking: How Technology has Affected the Bank Industry Aluscine Kabia Diana Mickle Jennifer Ross Betty Tekeste University of Phoenix COM525: Managerial Communication and Ethics Edward L. Dempsey March 14, 2005 Modern technology has set the stage for today’s industries to adopt faster, more effective and efficient tools to improve their business and productivity. A vast majority of organizations within

banking education

1136 words - 5 pages migrated to America ,and I attended American high school. In high school, students were taught in Problem Posting Education system. This system has increased my willingness to learn more since I was able to understand the concept better. According to my high school teacher, ninety percent of Banking Concept Education and only ten percent of Problem posting Education. Statistic shows most of the country use Banking Concept Education even the the

Islamic Banking.

3295 words - 13 pages Problem/ObjectiveThe objective of this research is to identify the attitudes of bank clients toward Islamic banking and to determine the factors that will encourage or limit the growth of Islamic banking in the coming five years.Importance of ProblemIn the decade of the 1990s, a variety of changes took place in the Middle East. To start with, the technological revolution that swept the world during this period had a very significant impact on

Online Banking

2687 words - 11 pages ONLINE BANKINGThe newest distribution channel for banks - the Internet - is said to be the future of banking. It offers a totally new services quality, which more and more people actually expect. It also offers the possibility of creating so called virtual banks - banks that do not have traditional departments, for which the only place of business is the virtual space. The main advantages of online banking are: cost reduction, the increase in

Money & Banking

1005 words - 4 pages . The "Fed" has three tools in which it can use to manipulate the money supply. These tools are the reserve requirement, the open market operations and the discount rate. If the "Fed" chooses to lower the reserve requirement for commercial banks it will effectively increase the money supply. This will allow the banking system to put more money into circulation. This can be effective, however it cannot force the banking system to

Islamic Banking

3526 words - 14 pages PAGE PAGE ii Islamic Banking in UK Islamic Banking in UK[Name of the writer][Name of the institution]АBSTRАCTThе purpоsе оf thіs rеsеаrch іs tо іnvеstіgаtе thе оppоrtunіtіеs оf dеvеlоpmеnt аnd grоwth аs wеll аs thе mаіn chаll

banking

681 words - 3 pages 1.Bármilyen törlesztési konstrukcióról is van szó, előfordulhat, hogy az adós nem tudja teljesíteni a kötelezettségeit. A takarékszövetkezet elsődleges célja az egyes hitelek esetén a hátralék felhalmozódásának megelőzése, továbbá az adósok fizetőképesség

Methodologies Used in Banking: Banking Manual System

2253 words - 9 pages Before the BI in banking manual systems were prevalent because the computers were not used extensively and this was when the banking operations were small and limited mainly to branches. The non-computerized system of banking involved the manual recording of branch transactions. The generation of rudimentary reports from the manual ledgers and were consolidated with those of other bank branches into a final report for the bank as one

Cord blood banking

840 words - 4 pages Umbilical cord blood banking has been a new topic for the media and public. Science has shown there are copious benefits and a few drawbacks with the use of cord blood. One of these drawbacks is the cost of cord blood banking. If insurance companies were to be mandated to cover cord blood banking, then more people could reap in the benefits of having cord blood stored. Umbilical cord blood was formerly believed of as a waste product. Now it

Similar Essays

Banking Essay

2507 words - 10 pages AbstractThis paper analyses the significance of bank runs in today's banking system. The first section researches some of the origins that cause bank runs to take place and its effect it has on the country's economy. It is found that some of the causes have been a result of:· Decline in the terms of trade· Economic growth and inflation rates· Bank-lending booms· Decline in equity prices· Increase in bank

Banking Essay

1216 words - 5 pages for folding, into a new independent federal agency (called the Banking Commission), the regulatory portions of the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS).This plan would save the government $150 to $200 million a year. This would also allow the FDIC to concentrate on deposit insurance and the Fed to concentrate on

Banking Essay

2482 words - 10 pages fair dealing and truthfulness (CAJEC, 1992). In an era of sustainable economic development models there is an increased attention on sectoral compatibility, environmental protection, and professional ethics (Safakli, 2005). Analyzing the recent bank failures it can be seen that the business and professional ethics is one of the most important elements of stability in banking and the finance sector. This is because the sectors are in particular

Banking Essay 1557 Words

1557 words - 6 pages I visited the Suncorp Metway bank and the lady who helped me was extremely helpful and gave me lots of information. She was really pleased that school's are teaching students about the banking facilities available.In addition to savings and cheque accounts this bank offers services such as insurance, investment, loans, superannuating and equipment leasing services.Their insurance facility covers home, car, life, boat, comprehensive third party