The value of durable bank relationships: evidence from Korean banking shocks

Using a large sample of exogenous events that negatively affected Korean banks during the 1997-98 period, we examine the value of durable bank relationships in Korea. We show that adverse shocks to banks have a negative effect not only on the value of the banks themselves but also on the value of their client firms, and that this adverse effect on firm value is a decreasing function of the financial health of both the banks and their client firms. Our results are concentrated in the second half of the sample period when Korean banks experienced severe difficulties. (C) 2002 Elsevier Science B.V. All rights reserved.