How Do Banking Characteristics Influence Companies’ Debt Features and Performance during COVID-19? A Study of Portuguese Firms
Abstract
:1. Introduction
2. Literature Review
2.1. Bank Relationship and Firm Performance
2.2. Bank Relationship and Firm Debt Cost
2.3. Bank Relationship and Firm Leverage
2.4. Impact of Board Member Gender on Firm Profitability, Cost of Debt, and Corporate Leverage
2.5. Effect of Size on a Firm’s Fundamentals
3. Sampling and Methodology
3.1. Samples and Variables
3.1.1. Methods
3.1.2. Results
3.2. Performance (ROA)
3.3. Cost of Debt
3.4. Leverage
3.5. Influence of Company Size
4. Conclusions
4.1. Theoretical Implications
- First, we used new banking characteristics, and an original variable to represent the board’s ability to handle banking relationships.
- Second, we studied the impact of bank characteristics on performance, debt cost, and leverage, going further and introducing five important variables: (i) bank share, reflecting the strength of the bank presence in Portuguese companies; (ii) a log of the banks’ assets, a measure of the size and the power of the banks’ association with a specific company; (iii) the banks’ net profit margins on assets demonstrating their effectiveness in supplying credit; (iv) the banks’ shareholder type measured by their type of shareholders from a scale of noninformed to most informed; and (v) the branches or subsidiaries where the banks conducted their activities in Portugal.
- Lastly, we separated the samples into different dimensions to understand the differences in the explanatory factors in performance, debt cost, and leverage in the Portuguese economy.
4.2. Practical Implications
- Managers are responsible for making daily decisions in the company; therefore, they must recognize how their decisions influence the firm’s debt features and performance.
- This work is also important for current and potential shareholders, as the creation of business value is strongly conditioned by restrictions on financing and business management.
- Lastly, the results provided may allow policymakers, financial analysts, and investors to better understand and act on banking characteristics and banking relationships with firms’ management, improving them to further optimize company performance, capital structure, and debt costs. Moreover, considering that this study was conducted on a sample of small companies from a small country in a year of severe economic turbulence, it would be worthwhile to identify counterpart countries to see if their behavior is similar. This would also help to develop action plans for governments, banks, and company leaders to deal with this issue.
4.3. Limitations and Lines for Future Research
Author Contributions
Funding
Informed Consent Statement
Data Availability Statement
Conflicts of Interest
References
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Bank | Nº. of Companies Working with Each Bank | Market Share Rank |
---|---|---|
Bank D | 10,129 | 1 |
Bank F | 7036 | 2 |
Bank O | 6559 | 3 |
Bank C | 6032 | 4 |
Bank L | 5863 | 5 |
Bank K | 2026 | 6 |
Bank J | 1880 | 7 |
Bank A | 1717 | 8 |
Bank G | 976 | 9 |
Bank H | 152 | 10 |
Bank I | 118 | 11 |
Bank M | 50 | 12 |
Bank N | 45 | 13 |
Bank B | 25 | 14 |
Bank E | 11 | 15 |
Total working relations with banks | 42,619 |
Banks (2020 Data) | Shareholder Score (Share Capital × Shareholder Type (0–4)) | Branch = 0 Subsidiary = 1 | Bank Market Share | Total Assets (th.EUR) | Profitability |
---|---|---|---|---|---|
Bank A | 2.6 | 1 | 8 | 7,257,808 | −0.90% |
Bank B | 1.8672 | 0 | 14 | 736,176,000 | 0.36% |
Bank C | 1 | 1 | 4 | 37,629,889 | 2.82% |
Bank D | 1.107 | 1 | 1 | 63,965,493 | 0.85% |
Bank E | 2 | 1 | 15 | 30,703 | −7.68% |
Bank F | 0.5277 | 1 | 2 | 57,448,833 | 6.90% |
Bank G | 2 | 1 | 9 | - | −100.00% |
Bank H | 1.07 | 0 | 10 | 93,230,295 | 0.22% |
Bank I | 0.5376 | 0 | 11 | 2,488,491,000 | 0.27% |
Bank J | 1 | 1 | 7 | 13,463,852 | 7.30% |
Bank K | 3 | 1 | 6 | 17,941,000 | −0.45% |
Bank L | 2 | 1 | 5 | 85,451,613 | 5.21% |
Bank M | 0.68133 | 0 | 12 | 1,325,259,000 | 0.04% |
Bank N | 1.14382325 | 1 | 13 | 584,446 | 6.43% |
Bank O | 1.25 | 1 | 3 | 44,042,448 | −49.92% |
Panel 1 Dependent variables. | ||||||||
Type | Variable | Meaning | Measure | N | Mean | Min | Max | p95 |
Dependent Variable | ROA | Return on assets from companies in 2020 | Companies’ return | 18,235 | 5.682902 | −460.12 | 416.127 | 22.802 |
Dependent Variable | loginterest | Average interest rate borne by companies in 2020, log-transformed | Debt cost | 15,798 | −5.671569 | −21.72283 | 1.093129 | −3.728048 |
Dependent Variable | debt_assets | Debt over assets | Debt gearing, leverage ratio | 18,235 | 0.5452176 | 9.83 × 10−16 | 23.34649 | 0.9245492 |
Panel 2. Regressors: companies’ variables | ||||||||
Type | Variable | Meaning | Measure | N | Mean | Min | Max | p95 |
Regressor | GenF | N.of female board members | Nº of female board members | 18,251 | 1.274177 | 0 | 89 | 4 |
Regressor | GenM | Nº of male board members | Nº of male board members | 18,251 | 3.422826 | 0 | 84 | 9 |
Regressor | logbanks | Nº of banks, log-transformed; bank characteristics | Bank relation diversity | 18,251 | 0.6973607 | 0 | 2.302585 | 1.609438 |
Regressor | banks_director | Nº of banks per board manager | Commercial capacity and negotiation ability | 18,251 | 0.6483294 | 0.0089286 | 4 | 1.333333 |
Regressor—control variable | logturnover | 2020 turnover (1000s of EUR), log-transformed | Size of companies—CONTROL VARIABLE | 18,235 | 8.218509 | 6.907816 | 15.68613 | 10.52459 |
Panel 3. Regressors: bank characteristics | ||||||||
Type | Variable | Meaning | Measure | N | Mean | Min | Max | p95 |
Regressor—bank characteristics | BankShare | Scoring of bank share averaged per no. of banks for each company (score/no. of banks; bank characteristics) | Bank presence; Strength in the market (share). The most frequent bank in Portuguese companies has a score of 1, while the least is 15 divided by the number of banks with which each company works. | 18,251 | 3.395376 | 1 | 15 | 6.25 |
Regressor—bank characteristics | BankShareholder | Banks’ principal shareholders (score, bank characteristics, divided by the number of banks with which each company works) | Score that weighs the range from the least to the best-informed shareholders (individuals 0, companies 1, government 2, institutional investors 3, and management 4) times each share’s capital percentage. Afterwards, this is divided by the number of banks each company works with. | 18,251 | 1.282747 | 0.5277 | 3 | 2 |
Regressor—bank characteristics | BankProfit | Banks’ profit/loss (2020) divided by the number of banks each company works with (score, bank characteristics) | Bank ROA | 18,251 | −0.0685831 | −1 | 0.0729941 | 0.0689644 |
Regressor—bank characteristics | logbanksize | 2020 assets (1000s of EUR), log-transformed; bank characteristics | Size of banks | 18,177 | 17.72711 | 0.4922912 | 10.33212 | 21.63494 |
Regressor—bank characteristics | Branch0Subs1 | If a bank has a subsidiary or a branch in Portugal (0 or 1, bank characteristics) | Allocation of limited assets or allocation of full mother company balance sheet (more branches mean less interest in the country of origin of the bank) | 18,251 | 2.316257 | 0 | 10 | 5 |
Panel 4. Segment and supporting variables | ||||||||
Type | Variable | Meaning | Measure | N | Mean | Min | Max | p95 |
Group variables | Big | Big companies—size category according to Portuguese Decree-Law Nº. 372/2007 | If [Employees ≥ 250 ꓦ (Turnover > EUR 50 mil ꓥ Assets > EUR 43 mil)] | 1356 | 1 | 1 | 1 | 1 |
Companies’ group sizes | Micro | Microcompanies are a size category according to Portuguese Decree-Law Nº. 372/2007 | If [Employees < 10 ꓥ (Turnover < EUR 2 mil ꓦ Assets < EUR 2 mil)] | 7486 | 1 | 1 | 1 | 1 |
Companies’ group sizes | Small | Small companies—Size category according to Portuguese Decree-Law Nº. 372/2007 | If [Employees <50 ꓥ (Turnover < EUR 10 mil ꓦ Assets < EUR 10 mil)] | 7894 | 1 | 1 | 1 | 1 |
Companies’ group sizes | Average | Average companies—Size category according to Portuguese Decree-Law Nº. 372/2007 | If [Employees < 250 ꓥ (Turnover < EUR 50 mil ꓦ Assets < EUR 43 mil)] | 1681 | 1 | 1 | 1 | 1 |
Supporting variable | Interest rate | Interest rate | Average interest rate supported by companies (needed to compute debt cost) | 18,251 | 0.007612 | 0 | 2.9 | 0.0229 |
Supporting variable | Employees | Number of employees in 2020 | Variables needed to calculate companies’ size degrees—MEDIATING VARIABLE | 18,235 | 71.73809 | 1 | 26,327 | 205 |
Supporting variable | Assets | Company assets in 2020 (1000s of EUR) | Variables needed to calculate companies’ size degrees—MEDIATING VARIABLE | 18,235 | 16,580.23 | 7.15403 | 6,557,136 | 41,699.04 |
Supporting variable | Turnover | Turnover in 2020 (1000s of EUR) | Variables needed to calculate companies’ size degrees—MEDIATING VARIABLE | 18,235 | 11,997.64 | 1000.061 | 6,492,301 | 37,219.52 |
ROA | Loginterest | Debt_Assets | |
---|---|---|---|
logbanks | −2.280 *** | 0.169 *** | −0.0431 *** |
[−8.34] | [3.55] | [−4.76] | |
banks_director | 1.800 *** | 0.302 *** | 0.0637 *** |
[4.34] | [4.22] | [4.61] | |
Gen-F | −0.0870 | −0.00906 | −0.00760 *** |
[−1.08] | [−0.59] | [−4.45] | |
Gen-M | −0.331 *** | 0.0386 *** | 0.00602 *** |
[−5.55] | [4.19] | [4.14] | |
BankShare | 0.106 | 0.00675 | −0.00228 |
[1.27] | [0.47] | [−0.88] | |
BankShareholder | −0.336 | 0.110 * | 0.0160 * |
[−1.25] | [2.28] | [2.31] | |
BankProfit | 1.852 ** | −0.118 | −0.102 ** |
[2.77] | [−1.07] | [−3.07] | |
logturnover | 1.464 *** | −0.0613 *** | 0.0209 *** |
[13.21] | [−3.35] | [6.42] | |
logbanksize | −0.565 ** | −0.0764 + | 0.00659 |
[−2.87] | [−1.91] | [1.03] | |
Constant | 5.537 | −4.427 *** | 0.216 + |
[1.52] | [−6.07] | [1.88] | |
Observations | 18,161 | 15,738 | 18,161 |
R-squared | 0.019 | 0.011 | 0.006 |
Adjusted R-squared | 0.019 | 0.011 | 0.006 |
Mean VIF | 1.61 | 1.64 | 1.61 |
Highest VIF | 2.32 | 2.30 | 2.32 |
ROA | Logint~t | Debt_a~s | Logbanks | Banks_~r | GenF | GenM | BankShare | BankShareholder | BankProfit | Logturnover | Logbanksize | |
---|---|---|---|---|---|---|---|---|---|---|---|---|
ROA | 1.0000 | |||||||||||
loginterest | −0.0905 * | 1.0000 | ||||||||||
debt_assets | −0.2055 * | 0.1311 * | 1.0000 | |||||||||
logbanks | −0.0618 * | 0.0806 * | −0.0056 | 1.0000 | ||||||||
banks_dire~r | 0.0172 * | 0.0691 * | 0.0094 | 0.4654 * | 1.0000 | |||||||
GenF | −0.0452 * | −0.0018 | −0.0218 * | 0.1369 * | −0.3104 * | 1.0000 | ||||||
GenM | −0.0701 * | 0.0210 * | 0.0206 * | 0.2545 * | −0.4275 * | 0.4581 * | 1.0000 | |||||
BankShare | 0.0064 | 0.0363 * | −0.0019 | 0.1244 * | 0.1264 * | −0.0149 * | −0.0266 * | 1.0000 | ||||
BankShareholder | −0.0077 | 0.0403 * | 0.0105 | 0.0862 * | 0.0926 * | −0.0161 * | −0.0202 * | 0.5678 * | 1.0000 | |||
BankProfit | 0.0234 * | −0.0126 | −0.0356 * | −0.0436 * | 0.0134 | −0.0163 * | −0.0565 * | −0.1088 * | −0.1177 * | 1.0000 | ||
logturnover | 0.0448 * | −0.0120 | 0.0441 * | 0.2448 * | −0.2383 * | 0.2591 * | 0.4946 * | −0.0176 * | −0.0423 * | −0.0443 * | 1.0000 | |
logbanksize | −0.0098 | −0.0316 * | 0.0156 * | −0.0250 * | −0.0635 * | 0.0261 * | 0.0574 * | 0.1720 * | −0.1115 * | 0.0600 * | 0.1129 * | 1.0000 |
Microcompanies | Small Companies | Average Companies | Big Companies | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
ROA | Loginterest | Debt_Assets | ROA | Loginterest | Debt_Assets | ROA | Loginterest | Debt_Assets | ROA | Loginterest | Debt_Assets | |
Logbanks | −1.531 * | 0.0705 | −0.0352 | −2.624 *** | 0.233 *** | −0.0241 * | −1.150 | 0.226 + | −0.0399 ** | −0.366 | 0.296 * | −0.0418 * |
[−2.38] | [0.84] | [−1.57] | [−8.76] | [3.62] | [−2.06] | [−1.46] | [1.69] | [−2.74] | [−0.49] | [2.00] | [−1.96] | |
Banks_director | 0.938 | 0.405 *** | 0.0449 | 1.567 *** | 0.227 * | 0.0574 *** | 1.705 | 0.239 | 0.0518 * | 1.391 | −0.498 | 0.0420 |
[1.02] | [3.82] | [1.32] | [4.17] | [2.53] | [4.41] | [1.16] | [1.04] | [2.05] | [0.74] | [−1.30] | [0.84] | |
Gen-F | −0.282 | −0.0397 | −0.0145 * | 0.0980 | −0.0229 | −0.00988 *** | 0.00441 | 0.0282 | −0.00363 | −0.534 ** | 0.0580 + | 0.00750 |
[−1.47] | [−1.45] | [−2.18] | [1.56] | [−1.50] | [−4.84] | [0.03] | [1.02] | [−1.27] | [−2.99] | [1.93] | [1.20] | |
Gen-M | −0.346 + | −0.00510 | 0.00917 + | −0.326 *** | 0.0214 + | 0.00831 *** | −0.256 * | 0.0353 | 0.00603 ** | −0.0785 | 0.0365 * | −0.00278 |
[−1.76] | [−0.26] | [1.76] | [−5.21] | [1.67] | [3.44] | [−2.05] | [1.61] | [2.60] | [−0.79] | [2.09] | [−0.94] | |
BankShare | 0.248 | 0.0170 | −0.00430 | −0.0457 | 0.0301 | 0.00191 | −0.303 | −0.0665 | −0.00555 | 0.349 | −0.0588 | −0.00880 |
[1.53] | [0.63] | [−0.68] | [−0.34] | [1.32] | [0.61] | [−1.27] | [−1.50] | [−1.05] | [1.47] | [−1.03] | [−1.45] | |
BankShareholder | −0.500 | 0.0306 | −0.000821 | 0.0808 | 0.0536 | 0.0284 * | 0.412 | 0.537 ** | 0.0651 ** | −0.851 | 0.442 + | 0.0485 |
[−1.18] | [0.43] | [−0.07] | [0.21] | [0.70] | [2.57] | [0.47] | [3.04] | [3.02] | [−0.67] | [1.88] | [1.57] | |
BankProfit | 1.146 | 0.202 | −0.105 + | 3.489 *** | −0.315 + | −0.118 ** | −1.261 | −0.800 * | −0.0553 | −3.544 | −0.325 | −0.0671 |
[1.00] | [1.17] | [−1.69] | [4.27] | [−1.91] | [−3.04] | [−0.53] | [−2.21] | [−1.18] | [−1.41] | [−0.75] | [−1.10] | |
Logturnover | 2.141 *** | −0.247 *** | 0.0578 *** | 3.155 *** | −0.140 *** | 0.0519 *** | 4.481 *** | −0.292 *** | 0.0206 * | 1.627 *** | −0.207 *** | 0.0440 *** |
[4.35] | [−4.02] | [3.86] | [16.91] | [−3.87] | [7.70] | [12.74] | [−4.08] | [2.10] | [6.65] | [−4.14] | [5.57] | |
Logbanksize | −0.274 | −0.0440 | 0.0148 | −0.538 | −0.0868 | 0.00339 | −0.350 | −0.000571 | 0.00548 | −0.308 | 0.0107 | 0.0124 |
[−0.79] | [−0.56] | [0.89] | [−1.30] | [−1.28] | [0.37] | [−0.60] | [−0.01] | [0.43] | [−0.58] | [0.09] | [0.89] | |
Constant | −3.908 | −3.471 * | −0.145 | −8.941 | −3.535 ** | −0.0456 | −28.98 ** | −3.918 + | 0.152 | −5.993 | −4.481 * | −0.109 |
[−0.55] | [−2.33] | [−0.45] | [−1.17] | [−2.78] | [−0.27] | [−2.60] | [−1.95] | [0.61] | [−0.59] | [−2.00] | [−0.42] | |
Observations | 7440 | 6200 | 7440 | 7869 | 6963 | 7869 | 1679 | 1510 | 1679 | 1338 | 1209 | 1338 |
R-squared | 0.009 | 0.013 | 0.005 | 0.060 | 0.015 | 0.023 | 0.089 | 0.033 | 0.016 | 0.037 | 0.040 | 0.032 |
Adjusted R-squared | 0.008 | 0.011 | 0.004 | 0.059 | 0.013 | 0.021 | 0.084 | 0.027 | 0.010 | 0.030 | 0.033 | 0.026 |
Mean VIF | 1.65 | 1.75 | 1.65 | 1.56 | 1.6 | 1.56 | 1.61 | 1.59 | 1.61 | 1.67 | 1.68 | 1.67 |
Highest VIF | 2.39 | 2.93 | 2.69 | 2.2 | 2.13 | 2.2 | 2.86 | 2.81 | 2.86 | 2.63 | 2.64 | 2.63 |
Gen-F | Company Size | Gen-M | Company Size | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
1 | 2 | 3 | 4 | Total | 1 | 2 | 3 | 4 | Total | ||
0 | 127 | 284 | 2394 | 2830 | 5635 | 0 | 2 | 2 | 93 | 218 | 315 |
1 | 233 | 482 | 3109 | 3223 | 7047 | 1 | 14 | 67 | 1285 | 2259 | 3625 |
2 | 233 | 429 | 1409 | 1002 | 3073 | 2 | 34 | 151 | 2057 | 2667 | 4909 |
3 | 243 | 248 | 608 | 277 | 1376 | 3 | 69 | 248 | 1661 | 1279 | 3257 |
4 | 144 | 137 | 222 | 90 | 593 | 4 | 101 | 257 | 995 | 542 | 1895 |
5 | 85 | 59 | 90 | 34 | 268 | 5 | 108 | 240 | 723 | 218 | 1289 |
6 | 46 | 24 | 27 | 10 | 107 | 6 | 133 | 200 | 437 | 134 | 904 |
7 | 39 | 9 | 14 | 3 | 65 | 7 | 117 | 163 | 251 | 81 | 612 |
8 | 15 | 2 | 3 | 9 | 29 | 8 | 113 | 125 | 150 | 40 | 428 |
9 | 9 | 5 | 4 | 2 | 20 | 9 | 125 | 94 | 99 | 20 | 338 |
10 | 7 | 0 | 2 | 3 | 12 | 10 | 84 | 58 | 53 | 10 | 205 |
Others | … | … | … | … | … | Others | … | … | … | … | … |
Totals | 1190 | 1681 | 7894 | 7486 | 18,251 | Totals | 1190 | 1681 | 7894 | 7486 | 18,251 |
Banks_ Director | Bank Shareholder | Log Banksize | No. of Banks | BankProfit | |
---|---|---|---|---|---|
Size | Mean | Mean | Mean | Mean | Mean |
1 | 0.34123807 | 1.2242169 | 17.965283 | 3.0630252 | −0.08754812 |
2 | 0.50611657 | 1.2692682 | 17.801556 | 3.0814991 | −0.0813828 |
3 | 0.66456148 | 1.2909413 | 17.722722 | 2.4537624 | −0.06897586 |
4 | 0.7119631 | 1.2864378 | 17.676897 | 1.9269303 | −0.06227995 |
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Reis, P.M.N.; Soares Pinto, A.P. How Do Banking Characteristics Influence Companies’ Debt Features and Performance during COVID-19? A Study of Portuguese Firms. Int. J. Financial Stud. 2022, 10, 98. https://doi.org/10.3390/ijfs10040098
Reis PMN, Soares Pinto AP. How Do Banking Characteristics Influence Companies’ Debt Features and Performance during COVID-19? A Study of Portuguese Firms. International Journal of Financial Studies. 2022; 10(4):98. https://doi.org/10.3390/ijfs10040098
Chicago/Turabian StyleReis, Pedro Manuel Nogueira, and António Pedro Soares Pinto. 2022. "How Do Banking Characteristics Influence Companies’ Debt Features and Performance during COVID-19? A Study of Portuguese Firms" International Journal of Financial Studies 10, no. 4: 98. https://doi.org/10.3390/ijfs10040098