Firms always face a pressure for better performance. A lot of indicators are being studied with respect to their effect on firm’s performance. Banking sector plays a vital role in terms of financing firms for their different projects and future investments. This paper is quite significant as it is targeting the low addressed area of Pakistan. A vital contribution is made by this research in order to understand the relationship of banks and firms and how the firm’s performance is affected by number of banks in relation with firm. It further opens the new horizons of research to investigate this relationship in depth. The bank relationship is remained a topic of interest in developed countries but meagre research was done in developing and emerging markets. This paper attempts to explain the firm-bank relationship and its impact on firm’s performance with the help of OLS regression analysis with robust errors. The data for 180 listed firms is collected from Karachi Stock Exchange (KSE). We use two proxies for bank relationship. A dummy variable is used for bank relations (1 if number of bank relations is more than 5 otherwise 0) and the second variable is actual number of relations a firm is maintaining with banks. Return on asset (ROA) and return on equity (ROE) are used as dependent variables as an indicator of firm performance. It concludes that the number of bank relations do affect firm’s performance significantly but negatively. As far as the bank relation dummy is concern it shows significant relation with ROA but no such relationship with ROE. After investigating the initial relationship, it can be said that bank relations are important for firms but there must be optimal number of banking relations.

Business firms are meant for profitability, growth and wealth maximization. In order to improve and investigate the factors which are influencing a firm performance are extensively studied by many researchers. Banking being the major source of financing to such firms is being targeted by researcher in the said perspective. A new idea has been discussed in this research by including banking relationship as a determinant of capital structure of the firm. This research has obtained the data for 180 listed firms for a period of 2008-2013 and investigates the impact of bankfirm relationship on the debt to equity ratio of the firm. The result shows that the dependent variable is significantly influenced by number of banking relationship a firm is maintaining. The dummy used for multiple bank relationship is however insignificant in order to explain the variations in capital structure of the firm. In the lights of the results it can be said that the optimal number of banking relationship is needed to maintain a particular capital structure ratio and ultimately the performance as the interest rates in developing countries such as Pakistan are quite higher than those of developed ones.