Effects of Agroindustrial firms’ characteristics on strategic banking relationship formations

Abstract

The empirical literature employing information-centric financial intermediation theories of firm-bank relationships (Aristei & Gallo, 2017; Berger et al., 2008) predict firms’ adoption of strategic banking choices in response to financial services supply constraints. However, whether and which agro-allied businesses adopt which relationship strategies remain an empirical question in the developing world. This cross-sectional (correlational) study examines, with the aid of firm-level data, the firm-specific determinants of four major dimensions of strategic banking relationship choices of agro-industrial firms in Ghana: (a) “polygamous” banking relations, (b) state-owned banking choices, (c) primary bank type choices, and (d) relationship intensity. Results show generally that both internal and external characteristics of agro-industrial firms motivate these banking choices. For instance, the number of banking relationships increases in firm size, age, refinancing risk exposure, food-and-beverage sector affiliation, having primary large and state-owned banking relationships and urban location. State-owned bank relationships and diversification propensities are driven, inter alia, by free zone operations, foreign trade orientation, well-connectedness, research and innovation orientation, with marked differences for sector-generic and sector-specific state-owned bank choices. Insistence on efficiency and outreach (closer relationships and quality) drives firms into primary relationships with foreign (state-owned) bank, regardless of their health and size. Finally, inter-industry diversification, firm leverage, corporate governance quality and relationship, trust and commitment and competitive banking markets correlate significantly with relationship intensity. The results motivate the recommendation for the creation of an agro-industrial development bank.