Bank Integration and Financial Constraints: Evidence from U.S. Firms
58 Pages Posted: 14 Apr 2008
Date Written: March 2008
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: Suggested Citation