Bank Integration and Financial Constraints: Evidence from U.S. Firms

58 Pages Posted: 14 Apr 2008

See all articles by Ricardo Correa

Ricardo Correa

Board of Governors of the Federal Reserve System

Date Written: March 2008

Abstract

This paper uses data on publicly-traded firms in the U.S. to analyze the effect of interstate bank integration on the financial constraints borrowers face. A firm-level investment equation is estimated in order to test if bank integration reduces the sensitivity of capital expenditures to the level of internal funds. The staggered deregulation of cross-state bank acquisitions that took place in the U.S. between 1978 and 1994 helps estimate the model. Integration decreases financing constraints for bank-dependent firms. The change in firms' access to external finance is explained by an increase in the share of locally headquartered geographically diversified banks.

Keywords: Bank deregulation, investment, financing constraints

JEL Classification: G21, G28, G31

Suggested Citation

Correa, Ricardo, Bank Integration and Financial Constraints: Evidence from U.S. Firms (March 2008). FRB International Finance Discussion Paper No. 925. Available at SSRN: https://ssrn.com/abstract=1118976 or http://dx.doi.org/10.2139/ssrn.1118976

Ricardo Correa (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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