The determinants of the number of banks: Empirical results ... - LEAD

‣ Dependent variable:NB. Number of banks in relation with the firm during 2008.‣ Independent variables:Firm’s characteristicsFirm‟s characteristics describe opacity and quality of the firm, which refer to the first, andthe fourth hypotheses of the study. We define quality as the firm's ability to meet its debts.It‟s an inverse measure of its risk of default.Size. We use the logarithm of total assets. Based on the assumption of opacity of the firm,we expect a positive relationship between firm size and the number of banks. A large firmusually has large financing needs that can not be satisfied by a single bank.Age. We use the logarithm of the number of years since the establishment of the firm. Anold firm is less opaque than a young firm. We expect a positive relationship between firmage and the number of banks.LC. The legal structure is taken into account through a dummy variable taken the value 1when the firm is limited company and 0 if not. This choice is explained by the fact thateach company is obliged to regularly certify their financial statements.Leverage. It is corresponded to the value of total financial debt reported to the value ofequity.Liquidity. We define the liquidity as the ratio of liquid assets to debt coming due in thenear time. A significant liquidity is associated with a lower risk of default.Flexibility. Financial flexibility measures the ratio between gross operating surplus andinterest payments.Profitability. We employ operating profit to total assets.Bank relationships characteristicsRAT. Credit rationing is measured by a binary variable taking the value 1 if the firm isrationed by their main bank and 0 otherwise. The answers given by firms to thequestionnaire gives us a direct measure of rationing.