Who captures who? Long-lasting bank relationships and growth of firms

The theoretical literature has identified potential benefits and costs of close bank-firm relationships for both parties, suggesting possible reasons for firms being captured by banks and vice versa. In this paper we empirically explore the effects of long-lasting credit relationships on employment and asset growth of a large sample of Italian manufacturing firms in the period 1998-2003. The main findings are that relationship lending hampers the efforts of small firms to increase their size (especially in terms of employees), while it mitigates the negative growth of troubled, medium-large enterprises, thus supporting the hypothesis that small firms are captured by banks which, in turn, are captured by large firms.