Abstract

http://ssrn.com/abstract=576963
 
 

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Banking Deregulation and Industry Structure: Evidence from the French Banking Reforms of 1985


Marianne Bertrand


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Antoinette Schoar


Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

David Thesmar


HEC Paris - Finance Department

July 2004

CEPR Discussion Paper No. 4488

Abstract:     
This Paper empirically investigates the impact of distortions in the banking sector on the structure and dynamics of product markets, as well as on firm level outcomes. Our analysis suggests that an increase in the efficiency of the banking industry can have first-order effects not only on the lending relationship between banks and firms, but also on the structure and dynamics of product markets overall. The particular reform we consider is the deregulation of the French banking industry in the mid 1980s. This deregulation eliminated government interference in bank lending decisions and allowed French banks to compete more freely in the credit market. Post deregulation, we find that banks are less willing to bail out poorly performing firms and that these firms experience a steeper increase in the cost of capital. Subsequently, firms in the more bank-dependent industries have a somewhat higher propensity to undertake restructuring measures. At the industry-level, we observe an increase in asset and job reallocation in the bank dependent sectors, mostly due to higher entry and exit rates of firms. We also find an improvement in allocative efficiency across firms, as well as a decline in industry concentration ratios. Overall, these findings are consistent with a model where distortions in bank lending create artificial barriers to entry in the real sectors of the economy. A more efficient banking sector, therefore, appears to play an important role in fostering a Schumpeterian process of 'creative destruction'.

Number of Pages in PDF File: 42

Keywords: Banking deregulation, industry structure, economic development

JEL Classification: G21, G32, O16

working papers series





Date posted: August 16, 2004  

Suggested Citation

Bertrand, Marianne and Schoar, Antoinette and Thesmar, David, Banking Deregulation and Industry Structure: Evidence from the French Banking Reforms of 1985 (July 2004). CEPR Discussion Paper No. 4488. Available at SSRN: http://ssrn.com/abstract=576963

Contact Information

Marianne Bertrand (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-5943 (Phone)
HOME PAGE: http://gsbwww.uchicago.edu/fac/marianne.bertrand/vita/cv_0604.pdf
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-588-0341 (Phone)
617-876-2742 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Antoinette Schoar
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
50 Memorial Drive, E52-447
Cambridge, MA 02142
United States
617-253-3763 (Phone)
617-258-6855 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
David Thesmar
HEC Paris (Groupe HEC) - Finance Department ( email )
1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
+33 1 39 67 94 12 (Phone)
HOME PAGE: http://www.hec.fr/hec/eng/professeurs_recherche/p_liste/p_fiche.php?num=135

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References:  25
Citations:  70

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