Showing papers in "Journal of Banking and Finance in 1998"
TL;DR: In this paper, the economics of small business finance in private equity and debt markets are examined. But the authors focus on the macroeconomic environment and do not consider the impact of the macro economic environment on small business.
Abstract: This article examines the economics of financing small business in private equity and debt markets. Firms are viewed through a financial growth cycle paradigm in which different capital structures are optimal at different points in the cycle. We show the sources of small business finance, and how capital structure varies with firm size and age. The interconnectedness of small firm finance is discussed along with the impact of the macroeconomic environment. We also analyze a number of research and policy issues, review the literature, and suggest topics for future research.
2,778 citations
TL;DR: A survey of the empirical and theoretical literature on the mechanisms of corporate governance can be found in this article, where the authors focus on the internal mechanisms and their role in ameliorating various classes of agency problems arising from conflicts of interests between managers and equityholders, equityholders and creditors, and capital contributors and other stakeholders.
Abstract: This paper surveys the empirical and theoretical literature on the mechanisms of corporate governance. We focus on the internal mechanisms of corporate governance (e.g., corporate board of directors) and their role in ameliorating various classes of agency problems arising from conflicts of interests between managers and equityholders, equityholders and creditors, and capital contributors and other stakeholders to the corporate firm. We also examine the substitution effect between internal mechanisms of corporate governance and external mechanisms, particularly markets for corporate control. Directions for future research are provided.
1,358 citations
TL;DR: In this article, the authors examined the effect of pre-existing relationships between a firm and its potential lender on the potential lender's decision whether or not to extend credit to the firm.
Abstract: In this article, I examine the eAect of pre-existing relationships between a firm and its potential lender on the potential lender’s decision whether or not to extend credit to the firm. I find that a potential lender is more likely to extend credit to a firm with which it has a pre-existing relationship as a source of financial services, but that the length of this relationship is unimportant. These findings provide empirical support for theories of financial intermediation positing that banking relationships generate valuable private information about the financial prospects of the financial institution’s customer. The results also provide evidence that potential lenders are less likely to extend credit to firms with multiple sources of financial services, in support of the theory that the private information a financial institution generates about a firm is less valuable when the firm deals with multiple sources of financial services. ” 1998 Published by Elsevier Science B.V. All rights reserved.
887 citations
TL;DR: In this article, the role of lending relationships in determining the costs and collateral requirements for external funds is examined empirically, and it is shown that relationship variables may have some bearing on the price of external funds, but much more so on loan collateralization and availability.
Abstract: We examine empirically the role of lending relationships in determining the costs and collateral requirements for external funds. The data originate from a recently concluded survey of small and medium-sized German firms. In our descriptive analysis, we explore the borrowing patterns and the concentration of borrowing from financial institutions. Using data on L/C interest rates, collateral requirements, and the firm's use of fast payment discounts we find that relationship variables may have some bearing on the price of external funds, but much more so on loan collateralization and availability. Firms in financial distress face comparatively high L/C interest rates and reduced credit availability.
825 citations
TL;DR: In this paper, the authors 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, and find no evidence for intra- or inter-temporal price differentiation related to housebanking.
Abstract: 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.
768 citations
TL;DR: In this paper, the authors consider the provision of venture capital in a dynamic agency model, where the value of the venture project is initially uncertain and more information arrives by developing the project.
Abstract: We consider the provision of venture capital in a dynamic agency model. The value of the venture project is initially uncertain and more information arrives by developing the project. The allocation of the funds and the learning process are subject to moral hazard. The optimal contract is a time-varying share contract which provides intertemporal risk-sharing between venture capitalist and entrepreneur. The share of the entrepreneur reflects the value of a real option. The option itself is based on the control of the funds. The dynamic agency costs may be high and lead to an inefficient early stopping of the project. A positive liquidation value explains the adoption of strip financing or convertible securities. Finally, relationship financing, including monitoring and the occasional replacement of the management improves the efficiency of the financial contracting.
725 citations
TL;DR: In this paper, the effects of bank-firm relationships on the cost and the availability of credit for a sample of small Italian firms, focusing on possible differential effects related to the local and/or cooperative nature of lending banks.
Abstract: The paper investigates the effects of bank–firm relationships on the cost and the availability of credit for a sample of small Italian firms, focusing on possible differential effects related to the local and/or cooperative nature of lending banks. We find that with banks other than cooperative banks, lending rates tend to increase with the length of the relationship for all customers, whereas with local cooperative banks (CCBs) this is the case for non-member customers only; by contrast, long-standing relationships have no significant effect on lending rates for CCBs' own members. This evidence is in line with bank capture theories, which may not apply to CCB members. We also find that CCB members enjoy easier access to credit, unlike non-member customers. Our results indicate that the main distinctive features of CCBs relative to commercial banks stem from their cooperative ownership rather than their local nature.
563 citations
TL;DR: This paper examined the extent to which the reliance on internal funds is affected by firm size, since there is general agreement that smaller firms have less access to external capital markets and should be more affected by the availability of internal funds.
Abstract: This paper examines the degree to which cash flow availability influences firm investment in six OECD countries. In particular, we are interested in the extent to which the reliance on internal funds is affected by firm size, since there is general agreement that smaller firms have less access to external capital markets and, thus, should be more affected by the availability of internal funds. Earlier work has concluded that the documented positive relationship between cash flow and investment is evidence of the existence of financial constraints. We first examine all firms, regardless of size, in each country, and we find that the amount of corporate investment is affected by internal resources in all six countries; that is, internal financing affects firm investment. We then repeat the analysis segmenting the sample using three measures of firm size. Contrary to our a priori expectations, we find that the cash flow-investment sensitivity is generally highest in the large firm size group and smallest in the small firm size group. We deduce that the explanations for these findings are grounded in managerial agency considerations, and in the greater flexibility enjoyed by large firms in timing their investments. Thus, we conclude that the degree of sensitivity of a firm's investments to its cash flows cannot be interpreted as an accurate measure of its access to capital markets (as do Kaplan, S., Zingales, L., 1997. The Quarterly Journal of Economics 169–215), since small firms are known to have less access to external markets.
442 citations
TL;DR: In this article, the authors summarized nine case studies, by nine authors, on the efficiency effects of bank mergers and found that four of the nine mergers were clearly successful in improving cost efficiency but five were not.
Abstract: This paper summarizes nine case studies, by nine authors, on the efficiency effects of bank mergers. The mergers selected for study were ones that seemed relatively likely to yield efficiency gains. That is, they involved relatively large banks generally with substantial market overlap, and most occurred during the early 1990s when efficiency was getting a lot of attention in banking. All nine of the mergers resulted in significant cost cutting in line with premerger projections. Four of the nine mergers were clearly successful in improving cost efficiency but five were not. It is not possible to isolate specific factors from these mergers that are most likely to yield efficiency gains, but the most frequent and serious problem was unexpected difficulty in integrating data processing systems and operations.
404 citations
TL;DR: In this article, the authors find that most mergers are of two or more small banks, and acquirers are almost as likely to have larger as smaller shares of small business loans in their portfolios, compared to their targets.
Abstract: We find that acquirers tend to recast the target in their own image, causing the small business loan portfolio share of the consolidated bank to converge toward the pre-merger portfolio share of the acquirer. However, concerns that this pattern will necessarily reduce bank small business lending may be overblown. First, most mergers are of two (or more) small banks. Second, acquirers are almost as likely to have larger as smaller shares of small business loans in their portfolios, compared to their targets. Finally, in roughly half the mergers, small business loans increase in the period immediately after the merger.
370 citations
TL;DR: In this paper, the authors investigated the relationship between bank lending to small businesses, banking company size and complexity, and bank consolidation and found that small business loans per dollar of asset rises, then falls, with bank company size, while the level of small business lending rises monotonically with size.
Abstract: This study investigates the relationship between bank lending to small businesses, banking company size and complexity, and bank consolidation. We consider two potential influences on small business lending associated with changes in the size distribution of the banking sector. On the one hand, organizational diseconomies may increase the costs of small business lending as the size and complexity of the banking company increases. On the other, size-related diversification may enhance lending to small businesses. We find first that small business loans per dollar of asset rises, then falls, with banking company size, while the level of small business lending rises monotonically with size. Second, consolidation among small banking companies serves to increase bank lending to small businesses, while other types of mergers or acquisitions have little effect. We interpret these findings as consistent with the diversification hypothesis.
TL;DR: The authors examined the profit efficiency of US banks chartered between 1980 and 1994 and found that profit efficiency improves rapidly at the typical de novo bank during its first three years of operation, but on average takes about nine years to reach established bank levels.
Abstract: We examine the profit efficiency of US banks chartered between 1980 and 1994. Our results suggest that profit efficiency improves rapidly at the typical de novo bank during its first three years of operation, but on average takes about nine years to reach established bank levels. Excess branch capacity, reliance on large deposits, and affiliation with a multibank holding company are associated with low profit efficiency at de novo banks. De novo national banks are initially less profit efficient than are state-chartered de novos, perhaps reflecting differences in the chartering philosophy of federal and state bank regulators.
TL;DR: In this article, the authors provide empirical evidence on the relationship between personal commitments and the allocation of small business credit, finding that personal commitments are important for firms seeking certain types of loans.
Abstract: This paper provides new empirical evidence on the relationship between personal commitments and the allocation of small business credit. The data suggest that personal commitments are important for firms seeking certain types of loans. Guarantees are more prevalent than collateral and organization type (corporate versus noncorporate status) appears to be particularly important in determining commitment use. No systematic relationship is observed between commitment use and owner wealth. Personal commitments appear to be substitutes for business collateral, at least for lines of credit, while personal collateral and personal guarantees do not seem to substitute for each other. Personal commitments have generally become more important to small business lending since the late 1980s.
TL;DR: In this article, cost, revenue, and profit efficiency are estimated by using models with and without nontraditional output, and the results suggest that the standard model which omits non-traditional output understates bank efficiency.
Abstract: In recent years, an increasing portion of bank income has been generated through nontraditional activities. Most studies of bank efficiency do not include any measure of nontraditional activities when measuring outputs. In this paper, cost, revenue, and profit efficiency are estimated by using models with and without nontraditional output. The results suggest that the standard model which omits nontraditional output understates bank efficiency. Evidence also surfaces that based on efficiency, the relative ranking of individual banks changes when nontraditional activities are included as a type of output.
TL;DR: The two types of experiments showed GA to be a very effective instrument for insolvency diagnosis, even if the results obtained with LDA analysis perhaps proved to be superior to those obtained from GA.
Abstract: This study analyses the comparison between a traditional statistical methodology for bankruptcy classification and prediction, i.e. linear discriminant analysis (LDA), and an artificial intelligence algorithm known as Genetic Algorithm (GA). The study was carried out at Centrale dei Bilanci, in Turin, Italy, analysing 1920 unsound and 1920 sound industrial Italian companies from 1982–1995. This paper follows our earlier examination of neural networks (NN) (see Altman et al., 1994 . Corporate distress diagnosis: Comparisons using discriminant analysis and neural network. Journal of Banking and Finance XVIII, 505–529). The experiments on GA were oriented along two different lines: the genetic generation of linear functions and the genetic generation of scores based on rules. The two types of experiments showed GA to be a very effective instrument for insolvency diagnosis, even if the results obtained with LDA analysis perhaps proved to be superior to those obtained from GA. Of particular interest, it should be noted that the results of GA were obtained in less time and with more limited contributions from the financial analyst than the LDA. Of additional interest is the relevance for credit risk management of financial institutions.
TL;DR: In this article, the authors present estimates of how much bank loans and real activity in small businesses responded to changes in banks' capital conditions and other bank and aggregate economic conditions using data for 1989-1992 by state, and they estimated the effects of those factors on employment, payrolls, and the number of firms by firm size.
Abstract: We present estimates of how much bank loans and real activity in small businesses responded to changes in banks' capital conditions and other bank and aggregate economic conditions. Using data for 1989–1992 by state, we estimated the effects of those factors on employment, payrolls, and the number of firms by firm size, as well as on gross state product. In response to declines in their own bank capital, small banks shrank their loan portfolios considerably more than large banks did. Large banks tended to increase loans more when small banks were under increased capital pressure than vice versa. Real economic activity was reduced more by capital declines and by loan declines at small banks than at large banks. Small banks were making “high-powered loans” in that dollar-for-dollar loan declines in their loans had larger impacts on economic activity than loan declines at large banks did. Capital declines at small banks produced larger changes in economic activity dollar-for-dollar than capital declines at large banks did. Aggregate economic conditions had smaller effects on small firms than on large firms and smaller effects on small banks than on large banks. The evidence hinted that the volume of loans made under Small Business Administration (SBA) loan guarantee programs shrank less in response to declines in bank capital than the volume of loans not made under the SBA loan guarantee programs.
TL;DR: In this article, the authors examined the relation of bank loan terms to borrower risk defined by the banks internal credit rating and found that riskier borrowers pay higher loan rate premiums and rely more on bank finance.
Abstract: This study examines the relation of bank loan terms to borrower risk defined by the banks’ internal credit rating. The analysis is not restricted to a static view. It also incorporates rating transition and its implications on the relation. Money illusion and phenomena linked with relationship banking are discovered as important factors. The results show that riskier borrowers pay higher loan rate premiums and rely more on bank finance. Housebanks obtain more collateral and provide more finance. Caused by money illusion in times of high market interest rates loan rate premiums are relatively small whereas in times of low market interest rates they are relatively high. There was no evidence for an appropriate adjustment of loan terms to rating changes.
TL;DR: In this article, a model is developed wherein entrepreneurs and venture capitalists contract under symmetric information, and it is shown this can lead to debt infeasibility and preferred equity usage.
Abstract: A model is developed wherein entrepreneurs and venture capitalists contract under symmetric information. Asymmetric information may arise following first contracting. It is shown this can lead to debt infeasibility and preferred equity usage. Control is linked to choice between common and preferred. Results are robust to multiperiod extensions. Roles of convertible preferred, retained equity, and debt in IPOs are considered. An empirical survey of venture capital firms is presented demonstrating preferred dominates in early financing. Debt and common are used far less – generally at later stages under lower probability of asymmetric information. These results agree with the theory's implications.
TL;DR: In this article, the authors present evidence on the angel market gathered from my field research which has involved interviews with more than a dozen angel investors in the Dallas/Fort Worth area.
Abstract: The market for angel capital – where individuals provide risk capital directly to small, private, often start-up firms – operates in almost total obscurity. Very little is known about the market's size, scope, the type of firms that raise angel capital, and the types of individuals that provide it. In this paper I present evidence on the angel market gathered from my field research which has involved interviews with more than a dozen angel investors in the Dallas/Fort Worth area. The angel market appears to be a very heterogeneous and localized market. With that qualification in mind, I present some common characteristics of the angels I interviewed, and how they select and monitor their investments. I pay particular attention to how they address adverse selection and moral hazard problems. I compare their behavior with venture capital limited partnerships in the more formal market for venture capital.
TL;DR: In this article, the authors examined what factors affect the location choice of Japanese multinational financial institutions and found that Japanese financial institutions choose their locations at least partially based on the local banking opportunity in the host countries.
Abstract: There are many studies investigating the location choice of foreign direct investment (FDI) of US banks. Nigh et al. (Journal of International Business Studies 17 (1986) 59–72) find that the choice does not depend on local banking opportunity. This paper examines what factors affect the location choice of Japanese multinational financial institutions. Our results are consistent with previous studies analyzing US banks in that the FDI of the manufacturing industry is an important determinant of the location choice of Japanese financial institutions. However, our results differ from Nigh et al., in that Japanese financial institutions choose their locations at least partially based on the local banking opportunity in the host countries.
TL;DR: The authors employed the generalized autoregressive conditionally heteroskedastic in the mean (GARCH-M) methodology to investigate the effect of interest rate and its volatility on the bank stock return generation process.
Abstract: The objective of this paper is to employ the generalized autoregressive conditionally heteroskedastic in the mean (GARCH-M) methodology to investigate the effect of interest rate and its volatility on the bank stock return generation process. This framework discards the restrictive assumptions of linearity, independence, and constant conditional variance in modeling bank stock returns. The model presented here allows for shifts in the volatility equation in response to the changes in monetary policy regime in 1979 and 1982 to be estimated. ARCH, GARCH, and volatility feed back effects are found to be significant. Interest rate and interest rate volatility are found to directly impact the first and the second moments of the bank stock returns distribution, respectively. The latter also affects the risk premia indirectly. The degree of persistence in shocks is substantial for all the three bank portfolios and sensitive to the nature of the bank portfolio and the prevailing monetary policy regime.
TL;DR: In this paper, the authors argue that share price reaction to a firm's capital expenditure decisions depends critically on the market's assessment of the quality of its investment opportunities, and they postulate that announcements of increases (decreases) in capital expenditures positively affect the stock prices of firms with valuable investment opportunities.
Abstract: In this study, we argue that share price reaction to a firm's capital expenditure decisions depends critically on the market's assessment of the quality of its investment opportunities. We postulate that announcements of increases (decreases) in capital expenditures positively (negatively) affect the stock prices of firms with valuable investment opportunities. Contrarily, we predict that announcements of increases (decreases) in capital spending negatively (positively) affect the share prices of firms without such opportunities. Our empirical results are generally consistent with these predictions. Overall, empirical evidence supports our conjecture that it is the quality of the firm's investment opportunities rather than its industry affiliation which determines the share price reaction to its capital expenditure decisions.
TL;DR: The authors analyzed the relation between organization structure and bank lending and found that affiliated banks are more responsive to local market conditions than their unaffiliated counterparts, and that despite the concerns raised regarding bank consolidation, affiliated banks were willing to lend in local markets as long as the opportunities are there.
Abstract: We analyze the relation between organization structure and bank lending. Loan growth among banks that are affiliated with a multi-bank holding company is shown to be less sensitive to the bank's cash flow, capital position and liquidity relative to unaffiliated banks. Our results, coupled with the recent findings of Houston et al. (Houston, J.F., James, C., Marcus, D., Journal of Financial Economics 46 (1997) 135–164.), suggest that bank holding companies establish internal capital markets in an attempt to allocate capital among their various subsidiaries. We also find that affiliated banks are more responsive to local market conditions than their unaffiliated counterparts. This finding suggests that despite the concerns raised regarding bank consolidation – affiliated banks are willing to lend in local markets as long as the opportunities are there.
TL;DR: This paper derived bank-specific measures of loan rate smoothing for small business borrowers in response to exogenous shocks to their credit risk and to interest rates, and then estimate cost and profit functions to examine how smoothing affects bank costs and profits.
Abstract: We provide evidence on the costs and profitability of relationship lending by banks We derive bank-specific measures of loan rate smoothing for small business borrowers in response to exogenous shocks to their credit risk and to interest rates, and then estimate cost and profit functions to examine how smoothing affects bank costs and profits Our results suggests that, in general, loan rate smoothing in response to a credit risk shock is not part of an optimal long-term contract between a bank and its borrower, while loan rate smoothing in response to an interest-rate shock is
TL;DR: In this paper, an empirical exploration of the determinants of the required credit spreads on highly leveraged transaction (HLT) loans is presented, using a multi-factor spread model to estimate the movement of loan spreads relative to spreads required in the (competing) corporate bond market.
Abstract: This paper is an empirical exploration of the determinants of the required credit spreads on highly leveraged transaction (HLT) loans. The analysis uses a multi-factor spread model to estimate the movement of loan spreads relative to spreads required in the (competing) corporate bond market as well as the significance of loan-specific characteristics in determining loan spreads. The empirical estimates are based on the Loan Pricing Corporation’s database which consists of over 4000 loan transactions between 1987 and 1994. We find a positive HLT loan spread sensitivity to changes in spreads in the corporate bond market, but this sensitivity is significantly less than unity; indicating that the HLT loan market and high yield public debt market are not fully integrated. Furthermore, there is evidence that lenders augment, rather than substitute, loan yield spreads with additional fees for syndication, commitment and cancellation risks. In general syndicated loans have lower yield spreads than other HLT loan types. ” 1998 Published by Elsevier Science B.V. All rights reserved.
Abstract: The widespread Italian practice of multiple borrowing has been studied with respect to the continuity of bank lending and to the interest rates charged to individual borrowers However, there is a lack of empirical evidence on the effects of multiple credit relationships over the fragility of the corporate borrowers Two theses are competing: one asserts that multiple borrowing results in a desirable sharing of risks; the other, that the parcellization of loans substantially weakens the discipline exercised by the banks and makes corporate borrowers more fragile Through multivariate techniques, we check whether the indicators describing the structure of lending relationships can help, along with balance-sheet variables, to separate healthy from failed firms This exercise shows that multiple banking relationships are associated with a higher riskiness of the borrowers, even though the impact is moderate in comparison with the importance of real and financial variables derived from balance sheets
TL;DR: The authors assesses the underlying challenges that the financing of young growth firms pose, the ways that specialized financial intermediaries address them, and the rationales for public efforts to encourage angel investors.
Abstract: Within the past few years, public efforts have sought to encourage individual, or “angel”, investors. This article provides an overview of the motivations for these efforts. It assesses the underlying challenges that the financing of young growth firms pose, the ways that specialized financial intermediaries address them, and the rationales for public efforts to encourage angel investors. The final section raises a set of questions about the practical implementation of these efforts.
TL;DR: In this article, the authors present a simple model of a real-time gross settlement (RTGS) system, which is used to analyze the reaction of banks and monetary policy variables to this new environment.
Abstract: Following the ongoing debate on risks in interbank payment networks, gross settlement systems are being adopted in several industrialized countries. These systems, which effect real-time transfers of monetary base among bank accounts, add management of intraday liquidity to the duties traditionally performed by central banks, and require new, ad hoc policy instruments. The paper presents a simple model of a real-time gross settlement (RTGS) system, which is used to analyze the reaction of banks and monetary policy variables to this new environment. It is shown that if daylight liquidity is costly, a network externality may induce banks to postpone payment activity, thereby affecting the quality of the information available to counterparts for cash management purposes. The increased noise may in turn induce higher than optimal levels of banks' end-of-day reserve holdings, relative to a social optimum, with adverse effects on expected profits. The rise of a daylight market for funds, predicted by the model, does not solve the mentioned externality problem. Some corrective policy measures are discussed.
TL;DR: In this article, an in-depth investigation of the expected ratings changes (drift) over time was conducted, comparing rating changes from the two major agencies, Moody's and S&P, over the period 1970-1996.
Abstract: Bond ratings are usually first assigned by rating agencies to public debt at the time of issuance and are periodically reviewed by the rating companies. If deemed warranted, changes in ratings are assigned after the review. A change in a rating reflects the agency’s assessment that the company’s credit quality has improved (upgrade) or deteriorated (downgrade). A coincident effect, in some proximity to the date of the rating change, is a change in the price of the issue. This article reports on an in-depth investigation of the expected ratings changes (drift) over time. Our analysis compares rating changes from the two major agencies, Moody’s and S&P, over the period 1970–1996. For the first time, results from several studies which have documented and analyzed these data patterns are contrasted. Depending upon which study one uses, the results and implications can be very different. We expect that the findings will have implications for such diverse practitioners as bond investors who concentrate on any or all segments of the corporate bond market, eg., high yield bond and “crossover” investors, mark-to-market analysts, and traders in the new and growing market for credit-risk-derivatives and for the many analysts who properly view that credit quality assessment involves the entire spectrum of possible outcomes, not just default. A follow-up study will analyze, in greater depth, two critical characteristics of the rating drift phenomenon. These are unexpected, as well as expected, rating migration patterns and also the implied impact on the price of the fixed income instrument.
TL;DR: In this paper, the authors examine the three cases of hostile takeovers in Germany in the post Second World War period and describe the important role played by banks in affecting the outcome of the bids: bank representatives were chairmen of the supervisory board in all three cases and banks voted a large number of proxies in important decisions affecting the bids.
Abstract: This paper examines the three cases of hostile takeovers in Germany in the post Second World War period It describes the important role played by banks in affecting the outcome of the bids: bank representatives were chairmen of the supervisory board in all three cases and banks voted a large number of proxies in important decisions affecting the bids The paper reports that low returns were earned by shareholders of two of the target firms and offers an explanation in terms of bank control and the regulatory regime operating in Germany