The Value of Bank Relationships: Evidence from the COVID-19 Crisis

We investigate how firms’ stock performance during the COVID-19 crisis varies, depending on firm–bank relationships. Using Japanese firms’ data, we find that the outbreak of COVID-19 caused a sharp drop in the stock performance of both firms with more concentrated bank relationships and those with less concentrated bank relationships during the Japanese stock market collapse in the early spring of 2020. However, firms with more concentrated bank relationships outperformed those with less concentrated relationships after the rebound of stock prices from March 17 to December 30, 2020. The bank relationship effects persisted throughout 2020. Our results suggest that close bank relationships contribute to the firms’ process of recovery from the COVID-19 liquidity shocks.