The presence of the lagged dependent variable Ci(-1) has a dual interpretation. On the one hand, it reflects relationship banking in the vein of the literature discussed in section . Long-term enterprise-bank relations help to reduce information asymmetries; banks would be more willing to lend again if they have already done so (we consider the banking sector as a whole as the lending party). On the other hand, a positive association can be interpreted as evidence of soft budget constraints on the part of the banks in the sense of Berglof and Roland (1998). The rest of the variables reflect.
