Empirical Research on the Effects of Firm-Bank Relationship on Firm’s Performance in Pakistan

Abstract

In this competitive world of business, every commercial organization is in search of better performance with the help reduction in costs and establishing good market relationships. Bank relationships is one of such policies in order to achieve better performance. This paper has discussed a new aspect of these relationships and its impact on client firm’s performance. The research has collected a data of non-financial firms listed in Pakistan Stock Exchange for a period of 2006-2015 and investigated the impact of Islamic Bank relationships in comparison to the Conventional bank relationships with respect to contribution in client firm performance. The results show that performance of client firm is associated with Islamic banking relationship, positively and significantly. ROA, ROE, ROS and Tobin’s Q are used as the proxies for firm performance and a ratio is calculated between numbers of bank relationship of Islamic bank to conventional bank. In the light of our findings, we suggest that the firms in Pakistan may get more benefits by establishing bank relationships with Islamic banks.

Keywords: Firm-bank relationship, Islamic bank, bank relationship, firm performance.