Bank deregulation and corporate risk

Tianjiao JIANG, Ross LEVINE*, Chen LIN, Lai WEI

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)

1 Scopus Citations

Abstract

Although research shows that competitive banks spur corporate growth, less is known about the impact of bank competition on corporate risk. Using a sample of more than 70,000 firm-year observations covering the period from 1975 through 1994, we find that deregulation that intensified competition among banks materially reduced corporate risk, especially among firms that rely heavily on bank finance. We find that competition-enhancing bank deregulation reduced corporate volatility by easing credit constraints when firms experience adverse shocks and reducing the procyclicality of borrowing.

Original languageEnglish
Article number101520
JournalJournal of Corporate Finance
Volume60
Early online date8 Nov 2019
DOIs
Publication statusPublished - Feb 2020

Fingerprint

Bank competition
Deregulation
Borrowing
Finance
Procyclicality
Corporate growth
Credit constraints

Keywords

  • Banks
  • Financial risk
  • Regulation

Cite this

JIANG, Tianjiao ; LEVINE, Ross ; LIN, Chen ; WEI, Lai. / Bank deregulation and corporate risk. In: Journal of Corporate Finance. 2020 ; Vol. 60.
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Bank deregulation and corporate risk. / JIANG, Tianjiao; LEVINE, Ross; LIN, Chen ; WEI, Lai.

In: Journal of Corporate Finance, Vol. 60, 101520, 02.2020.

Research output: Journal PublicationsJournal Article (refereed)

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AB - Although research shows that competitive banks spur corporate growth, less is known about the impact of bank competition on corporate risk. Using a sample of more than 70,000 firm-year observations covering the period from 1975 through 1994, we find that deregulation that intensified competition among banks materially reduced corporate risk, especially among firms that rely heavily on bank finance. We find that competition-enhancing bank deregulation reduced corporate volatility by easing credit constraints when firms experience adverse shocks and reducing the procyclicality of borrowing.

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