Does Relationship Banking Create Value? The Role of Universal Banks in Belgium at the Beginning of the 20th Century



We investigate how universal banks affect the value of affiliated companies, by looking at the impact of bank involvement on the performance of Belgian companies in the period 1905-1909. We focus on the Société Générale, which at that time was the dominant bank in Belgium. Our results, based on a comprehensive hand-collected dataset containing firm level stock market and financial statement data, suggest that universal banks matter. During and after the financial crisis of 1907, companies in which the Société Générale had a large equity stake performed significantly better than other companies. Performance is measured by a return-on-assets ratio and the market-to-book ratio. Companies which had several board interlocks with the Société Générale also performed better in the wake of the 1907 crisis. Paper download