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CONCLUSION

The banking relationship and in particular the degree of participation in that relationship are, from a theoretical perspective, important mechanisms for easing the problems of information asymmetry and reducing the potential for credit rationing. Based on this theoretical analysis, 3 general propositions have been derived based on benefits to firms from participation, benefits to banks from participation and benefits to firm performance from participation. Using data from a survey of banks and small businesses in the UK, different dimensions of participation were identified including personal interaction, information sharing and responsible behaviour. An exploratory analysis suggests that there is support for the first two propositions but that evidence for the third proposition is weak. Specifically, firms benefit through service quality and financing terms and conditions while banks benefit through higher levels of customer satisfaction and loyalty. However, it is not immediately clear that these benefits translate into improved firm performance as measured by either profitability or growth rate. However, the absence of conclusive evidence with respect to the last proposition may not be surprising given the cross sectional nature of the data.

There are a number of limitations associated with the current study which must be borne in mind when considering the generalisability of the results. First, many of the measurement instruments are relatively simple with a number of single item scales. Second, no attempt has been made in the study to consider the issue of causality explicitly. In particular with respect to quality and relationship variables, there is clearly opportunity to debate the extent to which relationship participation leads to improved service or whether better relationships increase willingness to participate. Intuitively it would seem likely that there is an element of both and clearly the issues of causality and interdependence represents an important area for future research. In addition, the findings are based only on a survey of customers and thus the measure of bank manager participation is based on the firms perception rather than the managers actual behaviour. the former serves as a useful proxy but can only be indicative of what bank managers actually do.

However, the preliminary findings do suggest that the issue of participation may be an important area for future academic research. Furthermore, despite their preliminary nature the findings do have important implications. The whole issue of managing relationships is likely to be of growing importance in the banking sector; faced with cost and competitive pressures, banks may need to consider carefully what types of relationship they wish to offer and how they might charge for associated services. Similarly, from the perspective of firms, there is clearly a strong case for more active information sharing and also perhaps a need to consider what type of relationship is most appropriate for a given business. In some cases, the 'hands-off' style which characterises the less participative relationships may be entirely appropriate if the business concerned is stable and mature with no obvious growth aspirations. However, for the entrepreneurial, young firm with ambitions to grow fast, the more participative style of relationship may be desirable and even essential if growth opportunities are to be realised.

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