Finance and Efficiency: Do Bank Branching Regulations Matter?

Review of Finance, Forthcoming

46 Pages Posted: 14 May 2010  

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

Jason Sturgess

Queen Mary University of London

Multiple version iconThere are 4 versions of this paper

Date Written: February 26, 2010

Abstract

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.

Keywords: Financial Development, Growth, Volatility, Diversification, Deregulation, Liberalization, Mean-variance Efficiency

JEL Classification: E44, F02, F36, O16, G11, G21, G28

Suggested Citation

Acharya, Viral V. and Imbs, Jean M. and Sturgess, Jason, Finance and Efficiency: Do Bank Branching Regulations Matter? (February 26, 2010). Review of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1604511

Viral V. Acharya

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY NY 10012
United States

HOME PAGE: http://pages.stern.nyu.edu/~sternfin/vacharya/public_html/~vacharya.htm

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Jean M. Imbs

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Swiss Finance Institute ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Jason Sturgess (Contact Author)

Queen Mary University of London ( email )

Mile End Rd
Mile End Road
London, E1 4NS
United Kingdom

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