Firm Performance, Financial Institutions and Corporate Governance in the Netherlands

This paper analyses the impact of share ownership, creditorship and networking by financial institutions on the performance of 94 Dutch non-financial firms in the period 1992-1996. We find a nonlinear relationship between firm performance and ownership by banks. Because of various defense mechanisms the role of the shareholder is very limited in the Netherlands. Financial institutions are, however, in a position to discipline firm management through other channels. It turns out that there is a direct positive link between share o wnership by banks and the firms` short-term bank loans, which indicates the existence of a financing channel. Financial institutions are also represented on the supervisory boards of firms and vice versa, which is an example of networking. This suggests that besides creditorship networking may be an additional disciplinary device for financial institutions. Here we find that there is a significant positive relationship between share ownership by insurance companies and pension funds and the probability of networking.