Finance and Efficiency: Do Bank Branching Regulations Matter?
Viral V. Acharya
New York University - Leonard N. Stern School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); New York University (NYU) - Department of Finance
Jean M. Imbs
Paris School of Economics (PSE); Centre for Economic Policy Research (CEPR); Swiss Finance Institute
February 26, 2010
Review of Finance, Forthcoming
We document that the deregulation of bank branching restrictions in the United States triggered a reallocation across sectors, with end effects on state-level volatility. The change cannot be explained simply by shifts in sector-level returns and volatility. A reallocation effect is at play, which we study in the context of mean-variance portfolio theory applied to sectoral returns. We find the reallocation is particularly strong in sectors characterized by young, small and external finance dependent firms, and for states that have a larger share of such sectors. The findings suggest that improving bank access to branching affects the sectoral specialization of output, in a manner that depends on the variance-covariance properties of sectoral returns, rather than on their average only.
Number of Pages in PDF File: 46
Keywords: Financial Development, Growth, Volatility, Diversification, Deregulation, Liberalization, Mean-variance Efficiency
JEL Classification: E44, F02, F36, O16, G11, G21, G28Accepted Paper Series
Date posted: May 14, 2010
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