Bank Lending and Firm Financing
Friday, Jan. 4, 2019 2:30 PM - 4:30 PM
- Chair: Denis Sosyura, Arizona State University
Government Ownership of Banks and Corporate Innovation
AbstractIn this paper we analyze the impact of government and private ownership of banks on firm innovation. We find that firms with more financing from government-owned banks are less likely to initiate and more likely to exit innovation. Among the innovators, firms that finance more through private banks successfully apply for a larger number of patents. These findings could be driven by a selection of lending relationships based on firms' preferences to innovate or, alternatively, by the crowding out of innovation due to the presence of government-owned banks. To differentiate between these two alternatives, we use the timing of government-owned bank distress events over the electoral cycle as an instrument. We show a remarkable increase in innovation following an exogenous decrease in government ownership of banks. Moreover, the allocation of credit is more responsive to the funding needs of future innovators amongst private banks, shedding lights on the mechanism. Overall our results suggest that government involvement in the allocation of credit crowds out private banking and comes at the cost of lower corporate innovation.
The Rise of Shadow Banking: Evidence from Capital Regulation
AbstractWe investigate the connections between capital regulation and the prevalence of lightly regulated nonbanks (shadow banks) in the U.S. corporate loan market. For identification, we exploit an administrative, supervisory credit register of syndicated loans, loan-time fixed effects, and plausibly exogenous variation in regulatory bank capital arising from the U.S. implementation of Basel III. We find that less-capitalized banks reduce loan retention and nonbanks fill the void. Stronger effects exist among loans with higher capital requirements, at times when capital is scarce, and for banks with higher unexpected capital requirements stemming from Basel III. Finally, we document an important consequence of this credit reallocation: loans funded by nonbanks—especially those with fragile funding—experience greater turnover and secondary market price volatility during the 2008 period of marketwide stress.
- G2 - Financial Institutions and Services