Mandatory Bank Disclosures and Credit Supply

61 Pages Posted: 27 Apr 2017 Last revised: 2 Feb 2018

Karthik Balakrishnan

London Business School

Aytekin Ertan

London Business School

Date Written: November 15, 2017

Abstract

This paper examines the real effects of mandatory disclosure regulation in the banking sector. We exploit the ECB Loan-level Disclosure Initiative as a shock to bank disclosures. At the bank level, we find that treatment banks raise more capital at cheaper rates and increase lending post-regulation. We use novel survey data on small businesses to distinguish credit supply from credit demand. These tests show that, in regimes with heightened bank disclosures, borrowers receive greater funding conditional on applying for a bank loan. We also find that companies whose relationship banks provide loan-level disclosures, start to borrow, invest, and hire more relative to the borrowers in the same country and industry in the same period. Collectively, our inferences suggest that asset disclosures alleviate the capital market frictions banks face and allow them to supply more credit to the real economy.

Keywords: Mandatory Disclosure, External Financing, Credit Supply, Bank Regulation, Real Effects

JEL Classification: G21, G28, G32, M41, M48

Suggested Citation

Balakrishnan, Karthik and Ertan, Aytekin, Mandatory Bank Disclosures and Credit Supply (November 15, 2017). Available at SSRN: https://ssrn.com/abstract=2959077 or http://dx.doi.org/10.2139/ssrn.2959077

Karthik Balakrishnan

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

Aytekin Ertan (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom
442070008131 (Phone)

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