Bank connections and corporate restructurings: Evidence from Thailand

This study analyzes the importance of bank connections that occur as a result of family relationships and social relations using the data from Thailand. The sample periods covering the 1997 East Asian economic crisis are separated into three phases: pre-crisis (1996), during the crisis (1997-1998) and post-crisis (1999-2000). The presence of relationships between firms and banks is expected to increase the possibility of firm restructuring activities because of useful and timely advice from their close banks. In the pre-crisis period, the probability of dividend cut is higher among bank-connected firms than non-connected firms; during the crisis, top management turnover appears to be the restructuring strategy adopted by connected firms. In the post-crisis period, however, connected firms are less likely to undertake debt restructuring actions, which are mainly driven by a lower incidence of financial advisor appointments. Nevertheless, we find no strong evidence that bank relationships add value to the firms because changes in performance after undertaking restructuring activities are not significantly different between connected and non-connected firms. Overall, the results of this research suggest that connected banks play an important role on a firm's key financial strategy.